Are you short on cash but would like to treat yourself out on a vacation or holiday? Maybe an expense that has popped up unexpectedly? An unsecured loan can be the right option to save you all these hassles. But this is a huge financial decision, so you need to tread cautiously. Don’t rush to make a decision that may put you into financial trouble. Unsecured loans are one of the good options to those who want money with urgency. Besides, they do not require any form of security as collateral. Though qualifications might be strict due to a lack of collateral, they are one of the ideal financial tools to help you get cash when you are flat broke.
However, before moving forward with the application, it is imperative to understand all details about unsecured loans. This article provides a thorough overview of unsecured loans and important factors associated with them. So read along.
Meaning of unsecured loans
Like the name, unsecured loans don’t need any form of security. Essentially, they are a type of personal loan that you don’t have to offer any assets when you apply. It means you don’t have to put your only asset at risk. If you need to merge debt, fix up a house, or cover unexpected costs, you can use money from unsecured loans.
Unsecured loans come with high interest rates which makes them quite costly. But, there are cases where a borrower may get a lower rate. For instance, with a good credit history. When applying for the loan, ensure you go through the terms and conditions to understand the applicable rates, any extra charges, or hidden fees. More importantly, look around for a lender with better offers.
How unsecured loans work
Technically, with unsecured loans, the lender gives a borrower a lump sum amount which is to be paid back in EMIs including the interest rate. You can get as low as INR 10,000 with an interest which usually ranges between 6% to 36%.
However, the better or the excellent score you have, the more trustworthy the lender finds you, which results in a low rate. The reverse is true however; a poor score means that the probability of not paying your loan on time is high, so this will be risky for the lender, therefore the rate may go up.
An unsecured loan can also be termed a short term loan due to its short tenure, though there are some with longer tenure. Basically, the lender gives money to a borrower and expects them to pay back in the shortest time possible, within 3 to 2 years. A short tenure is beneficial to the borrower as the interest will also be lower.
Factors to Take into Account Before Applying
Unsecured loans are not secured by personal property and are very flexible in how they are used. Nowadays, you can get such loans online quickly. As such, you will be attracted to these loans and tempted to apply right away. But there are several factors to bear in mind before you can apply. Your credit score, the eligibility of the lender, and the applicable rates you will pay are among the main things you may need to evaluate.
1. Credit score
The credit score determines whether a lender will give you a loan or not. This three-digit number is an important factor that usually shows if you are a responsible borrower. Lenders will check the score to ascertain whether you have been paying your debts on time.
It often ranges from poor to excellent, with excellent scores given priority in loan applications. A good credit score will enable you to get a loan with better terms. Therefore, before you can apply for the unsecured loan, ensure the score is excellent. If it is not, try to make it better before you can apply. In the long run, you may get better offers.
2. Know the eligibility requirements required
Different lenders have different eligibility requirements for unsecured personal loans. Below are some of the eligibility criteria:
- Be an Indian citizen.
- Have 21 years and above.
- Have a bank account with regular salary credited to the account.
- Be receiving a monthly salary of at least INR 20,000.
3. Check the rates applicable
Even though unsecured loans don’t need security, the interest rates are very high. And, the rate you will get depends on the loan amount, the tenure and sometimes your score. If the tenure is high, be prepared to pay a high interest rate which equates to more money. However, some banks will offer instant loans at lower rates but it depends on your income, ability to repay.
4. Processing and approval times
In general, banks will take a week to process an unsecured loan application as long as you’ve submitted the correct and required documents. However, there are times when the loan is sanctioned in hours. This happens mostly for pre-approved personal loan applications and for people with good credit history. All in all, the approval times and processing depend on the specific lender or bank.
Conclusion
Taking out a loan should be a last resort. Debt comes with conditions and costs, so it’s best to exhaust other options first. Think about using your savings or asking for help from friends and family before turning to loans. If it is a must you take the loan, apply through the personal loan app and make sure to keep it to a minimum by considering these factors. This way, you can ensure the loan is manageable and serves its purpose effectively.
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