Unsecured Personal Loan: Features And Types

Finances are always a top priority when you want to achieve a set of goals in life. This is why many people advise on regular saving as it helps you when you’re in urgent need of funds. But what if hard-earned money falls short when an immediate need for money arises? Borrowing a loan is the only thing that comes in handy all the time. An unsecured personal loan is a great way to avoid such financial complications that one may face in life.An unsecured loan is a type of loan provided to the applicant where there is no collateral requirement. Collateral is something that the borrower must give in exchange for the loan amount. The borrower will get their collateral back once they pay the loan amount with interest. Property, jewellery, and other assets are types of collateral submitted. This type of personal loan is provided to the applicant based on the applicant's creditworthiness. Credit cards, student loans, and personal loans are a few types of unsecured loans.Unsecured loans are a lot riskier for the lenders as compared to secured loans. Hence, they require a high credit score and a great record to approve the applicant's unsecured loan request. In case the borrower defaults on the unsecured loan, the lender has the right to commission a collection agency for the collection of the debt amount. The lender also has the right to take the borrower to court in that case. Even though it's the lender's choice to approve or reject the loan applicant, there are laws that ensure protection to borrowers against discriminatory lending practices.Unsecured loans, also popularly known as personal loans or signature loans, is the type of loan that can be approved without the requirement of any collateral like property, jewellery, land or any other assets. The approval or the rejection of the application for an unsecured loan depends on the creditworthiness and the credit report of the applicant. It is essential for the borrower to have a high credit score so that the lender can approve the application and lend the required amount to the borrower. In the secured loan, the applicant or the borrower has to pledge some sort of assets in exchange for the amount they require.Whatever the borrower has pledged with help, the lender feels secure and safe about the loan. That is why it is very important for the borrower to have a good credit score.

• The application process of an unsecured personal loan is very simple and convenient. You, as a borrower, does not have to visit the branch frequently to avail this type of loan. You can easily avail of this loan by visiting your financial institution or bank's website and filling out the online form required.
• Most reputed banks and financial institutions offer quick turnarounds on unsecured personal loan applicants. This means that sometimes it is possible for your loan application to be approved really quickly and sometimes even under 24 hours.
• Unsecured personal loans are known for being effective and user friendly. It can come in handy during some financial crises and financial emergencies.
• Since the borrower isn't required to provide any collateral to avail of the unsecured personal loan, the borrower will be required to pay a higher interest rate. The interest rate is higher in an unsecured loan as compared to other regular loans.
• Depending on your repayment capability and how much time do you require to pay the loan back, you can choose the tenure as per your preference. The loan tenure can range from 1 year to 5 years.
• The documentation process in an unsecured personal loan application is minimal. Now lenders prefer getting the documents online, and the whole process has become paperless. Identification proof, address proof and a few other documents are only required for the process. You also get an option to submit the documents online.
• The loan amount totally depends on your income. The higher your income, the greater the loan amount will be offered by the lenders. Depending on your requirement and your income, you can choose the amount as per your preference.
• A good credit score indicates your repayment and credit history, which means you can get a loan at a lower interest rate. The interest rate remains the same throughout the tenure
• You can avail the loan without pledging any valuable assets or security or collateral
• There are minimum documentation and loan gets approved in minutes

There are three types of unsecured loans, these include:

1. Signature loan: To avail this type of loan, you only have to give your signature to get the loan amount. The signature is an assurance that the loan applicant will repay the loan without fail within a specified time. A signature loan is only offered solely based on your creditworthiness.
2. Credit Card on Loan: unsecured personal loan. Using the card, you can effectively purchase anything; however, the interest rate is quite high (24% to 36%) as compared to a Signature loan. You can avail a credit card as a loan if you do not have a decent credit score. It is best to opt for lumpsum loan amount at the beginning to ensure the optimal interest rate.
3. Line of Credit: Banks or credit unions offer a line of credit loan when you need financial help at regular intervals. If you have a better credit score, you will be eligible for a lower interest rate. As a borrower, you can use a small amount from the whole and keep the rest with the bank to use it when the need arises. The interest rate is charged only on the amount withdrawn from the bank.
4. Personal Loan A personal loan is one of the most preferred and common types of unsecured loans. You are not required to mention the reason for you to take this loan. Unsecured personal loans are a type of loan where you repay the loan over the fixed tenures in EMIs. An unsecured personal loan can be availed by both online and offline methods. Banks and NBFC's both offer personal loans to all.
5. Education Loan Also known as a student loan, an education loan can be used to pay for your studies or education courses. One of the best features of an education loan is that the borrower does not have to pay anything during the moratorium period. This period is also known as the holiday period or the waiting period. Education loan offers the most flexible repayment mode, and the applicant can also enjoy certain subsidies on education loan. The applicant can use this loan to pay for their hostel fees, mess fees, course fees, libraries fees and other academic course-related fees.

There are a few methods you can use to apply for an unsecured loan.

• Visit the company's website- Most well-known banks and financial institutions offer online services to customers. You can use this to your advantage and apply for unsecured loans through their website.
• Visit the office branch- You can use the traditional method and visit the branch office and apply for an unsecured loan. This is not the most popular choice among people because of the advancement in technology. People usually prefer checking the online website of their preferred lender rather than physically visiting their office.
• Get in touch with loan aggregators- There are a number of 3rd party loan aggregators available in the market. These third-party loan aggregators help you find the best deals and offers available in the market. You can also check interest rates and other important things on their website.

Your credit history, income as well as your employment status plays a major role in the approval of your application for an unsecured loan. The lender will look at all your previous credit history and report to understand your repayment abilities. If you have a high credit score, the chances of your application getting approved are higher. The lender will also check your income to make sure they know you will be able to repay conveniently.The lender will ask you to provide certain documents like an offer letter, payslip, income tax returns, as well as your bank statement so that they can verify your income details. The lender would also make sure you have a regular and reliable source of income on a monthly basis. You can be a salaried person or a self-employed applicant; as long as you have a steady source of income, you can apply for an unsecured loan. If you are a salaried applicant, you would be required to provide your offer letter, relieving letter, payslips from your current as well as your previous company to verify your job status. If you own a business are you are self-employed, the lender will ask you to provide proof of continuity of your business and as well as a proof of your business ownership.

The applicant should have a stable job or a reliable source of income.

• If the applicant is salaried they should have a minimum two years of professional service experience.
• If the applicant is self-employed they should have a minimum 5 years of earning tenure.
• The age of the applicant should not be less than 21 or more than 60 years for salaried borrowers
• At the age of applicant should not be less than 25 or more than 65 first self-employed applicants
• The credit score of the applicant should be high.

Documents required for salaried applicants:

• The applicant's passport size photographs
• Loan application forms filled
• A couple of passport size photographs
• Identity proof- Aadhar card, passport, driving license, pan card, voters ID, etc
• Residence proof- utility bill, Aadhar card, passport etc
• Last three or last six months' salary slip

Documents required for self-employed applicants:

• Processing fee cheque
• Proof of business continuity
• Office address proof
• A filled out loan application form
• A couple of passport size photographs
• Identity proof- Aadhar card, passport, driving license, pan card, voters ID, etc
• Residence proof- utility bill, Aadhar card, passport etc
• Last three or last six months' salary slip