Security, or collateral, is one of the primary challenges people face while applying for a loan. It guarantees returns on the loan amount if you fail to repay on time. For example, you may want a large personal loan without security. Hence, the bank might ask you to give a certain percentage of your home as an equity mortgage. Similarly, a vehicle loan will have the car under your title as collateral.
Thus, a without security loan is often granted based on what you will use as collateral. The lower the risks, the higher the value of your collateral. It can help your loan be approved faster. Moreover, you don’t have to worry about having a bad credit score.
However, providing security comes with risks. If you fail to make timely payments, the lender may seize your collateral. Let’s look at some ways in which you can get a personal loan without security.
Consider Unsecured Loans
One of the best ways to get a personal loan without security is to opt for an unsecured loan. As the name suggests, unsecured loans don’t require collateral. All you have to do is show proof of income. Sometimes, you may also have to provide the details of your guarantor. A guarantor is someone who can repay your loan in case you default.
For unsecured loans, any missed payment is charged with a late fee. As the outstanding balance on the loan starts increasing, the interest will also increase. Thus, you need to pay more than the initial interest amount. That’s what offers a guarantee to the creditor while issuing unsecured loans.
Risks of a Personal Loan Without Security
Here are some of the risks associated with a personal loan without security:
- For unsecured loans, the risks associated with the credit will automatically increase the interest rate. Therefore, you cannot expect the creditor to offer you a loan at a nominal rate because they also need a guarantee for the money they lend you. And a higher interest rate is the way to do so.
- Not all unsecured loans come with the option of foreclosure or early pay-offs. For instance, you won’t be able to pay 30% of the loan amount during the first few months since foreclosure is often penalised for unsecured loans.
- You need to pay a considerable fee if you want to pay any amount upfront for a personal loan without security. This is one of the scariest things that could happen if you take out an unsecured loan, especially from a private lender or peer-to-peer lender.
- When you take a personal payday loan, you need to repay the amount within the first payment cycle of your salary. Failure to do so will incur a significant interest charge on your principal amount, automatically making it more challenging to pay off the debt.
With these known risks, you can steer clear of the actions and ensure the total amount due doesn’t increase or the chances of failure are significantly reduced.
Get the credit score high
Another way to get a personal loan without security is to maintain a high credit score. A credit score is a number assigned to your credit account based on your actions, credit history, etc. Maintaining a credit score above 650 consistently is better to ensure the chances of the loan application being rejected are reduced significantly.
However, it is not easy to maintain a high credit score at such a level. For instance, if you use your credit card to purchase something but always make the payment late, after the due date, it will negatively impact your credit score. Similarly, your credit score will decrease if you pay the minimum amount every month instead of the total amount due. The higher the debt, the lower the credit score, significantly reducing the chances of getting the loan application approved.
Show substantial and valid income documents
Another thing you have to be sure of is your income. You should submit valid and robust proof of a consistent income flow to get a personal loan without security. This will help ensure the creditor that you can quickly repay the loan without making late payments or missing a single payment due to a shortage of funds. If you directly link your salary account with that of the loan account, the EMIs will be deducted automatically, and you won’t even have to worry about missing the payments.
Besides, the income proof with pay stubs from the past six months, a letter from your employer, and other such documents will increase the chances of the loan application getting approved. If you fail to provide all these documents, you might not be able to get the loan with the same principal amount you asked for or with a lower average interest rate.
Choose a proper creditor
Last but not least, you should connect with a proper creditor who is trustworthy and reliable and offers personal loans without security. This way, you won’t have to worry about giving any collateral to take the loan. Check the interest rate being charged, the allowance for foreclosure or upfront payment, and so on. This will help you to avoid any penalty being levied on the loan amount due to a violation of the terms and conditions of the creditor.
If you want to know more about “without security loans,” connect with the experts at Piramal Finance today! Find out all the aspects of an unsecured loan and how to reduce the associated risks.