An unsecured loan is a type of loan that does not require any security or collateral. In other words, if you default on the loan, the lender cannot seize your assets or property. Applying for an unsecured personal loan online is a simple and convenient process. Many lenders offer this type of loan, so you should compare all available offers before picking a lender. This blog aims to provide helpful information about unsecured loans — from how to apply for an unsecured personal loan to what to expect in the application process.
What are secured and unsecured loans?
A secured loan requires the borrower to pledge some asset (e.g. a car or property) as collateral for the loan. It gives the lender a security interest in the asset until the loan is repaid. An unsecured loan is not backed by any collateral; the lenders’ only recourse in the event of default is to attempt to recover the debt from the borrower through legal action.
Home loans, gold loans, loans against property, etc., fall under the secured loan category, whereas personal loans, term loans, and home renovation loans are all unsecured loans.
Benefits of an unsecured personal loan
When you want to finance a large purchase or consolidate debt, an unsecured personal loan could be a good option for you. Unsecured loans do not require any collateral and can often be obtained with competitive interest rates. Here are some other benefits of an unsecured personal loan:
No collateral required: As mentioned previously, unsecured loans do not require any collateral, so you will not have to put up your home or car as security for the loan.
Flexible repayment terms: Repayment terms for unsecured loans are often more flexible than those for secured loans, so you can choose a plan that fits your budget and financial needs.
Competitive interest rates: Interest rates on unsecured loans are typically lower than those on credit cards so that you can save money on interest charges over the life of the loan.
Fast and easy approval process: Unlike some types of loans, such as a home loan, which can take weeks or even months to get approved, unsecured personal loans are generally approved within hours to a few days.
An unsecured personal loan could be a good option if you want a loan to finance a large purchase or consolidate debt.
How to apply for an unsecured personal loan online?
To apply for an unsecured loan online, you must first find an online personal loan lender that offers unsecured personal loans. Then, complete their online application form with your basic information. The information you submit should be accurate, as the lender will use this to evaluate you as a potential borrower. Once you submit your application, the lender will review your information and decide whether or not to approve your loan. Upon approval, you’ll have the funds in your account promptly. In some cases, you may even be able to get your money on the same day that you apply!
What are the risks of an unsecured personal loan?
Here are a few things to be careful about with unsecured personal loans:
Default: If you fail to make your loan payments, the lender can take legal action against you. It could impact your credit score or result in the court withholding your earnings.
High-interest rates: Unsecured personal loans typically have higher interest rates than secured ones, which means you’ll pay more interest. The interest rate is generally between 10.5% to 24% per annum and can vary based on income, age, and relationship with the lender.
Short repayment terms: Many unsecured personal loans have additional charges and shorter repayment terms than secured ones, making repayment difficult and unmanageable for the borrower. In most cases, short repayment terms are between 6 and 18 months.
How to compare unsecured personal loans?
When taking an unsecured personal loan, comparing offers from multiple lenders is essential. There are a few things to keep in mind when doing this:
The interest rate: This is the most crucial factor when comparing loans, as it determines the total repayment amount. You should compare APRs (Annual Percentage Rates) and not just the interest rates, as this takes into account any fees the lender may charge.
The repayment term: This is the length of time over which you will repay the loan and will also affect the total amount you pay back. A longer repayment term will mean lower monthly payments but a higher total cost, while a shorter term will be more expensive overall but may be easier to manage financially.
The loan amount: The loan size will also affect your decision, as different lenders may have different limits. Make sure to compare offers from multiple lenders to find the best deal for the amount you need.
Your credit history: Your credit score plays a significant role in determining the interest rate you are offered, so it is worth checking your credit report before applying for loans. If you have a good credit history, then you should be able to get a better deal. A credit score between 670 to 739 is considered good.
By considering all of these factors, you should be able to find the best secured and unsecured loan for your needs. Now that you know quite a lot about unsecured loans let’s look at some common questions about them.
Frequently Asked Questions On Unsecured Personal Loans
1. How can I use an unsecured personal loan?
An unsecured personal loan can be used for many purposes, including paying off debt, financing home improvement projects, automobile or consumer durable purchases, and emergency medical expenses.
2. How long does it take to get approval for an unsecured personal loan?
The approval process for an unsecured personal loan is faster than that for a secured loan. You can expect to receive your money within a few days if approved.
3. Are there any fees associated with unsecured personal loans?
There may be some fees associated with taking out an unsecured personal loan, including origination fees, late payment fees, and prepayment penalties. Be sure to ask about potential costs before you agree to take out a loan.
4. What is the difference between an unsecured personal loan and a secured loan?
An unsecured personal loan is not backed by any collateral, while a secured loan is backed by collateral, such as a home or car. Unsecured loans are typically more difficult to qualify for than secured ones, but they can be used for broader purposes.
If you need quick cash, an unsecured personal loan may be a good option. However, because there is no collateral securing the loan, an unsecured loan may have higher interest rates than a secured loan. So before you apply for a secured and unsecured loan, ensure you understand the terms and conditions and are comfortable with the interest rate you’ll be paying.
If you are looking for loans to buy a car or a house, or consolidate your debts and expenses, then Piramal finance is the place for you. We offer competitive rates with flexible payment options.