Unsecured Loans: Meaning, Types, Benefits & Eligibility
Do you need access to funds on a shorter processing period without pledging your personal assets as security? An unsecured loan can be an appropriate financing option in such cases, as it does not require you to provide an asset as security. By definition, an unsecured loan meaning describes as a collateral-free loan that is granted based on your monthly income, credit score, and other financial factors.
Whether you’re planning for your wedding expenses or facing an unexpected medical emergency or rising debt obligations, an unsecured loan is a potential financing option. In this guide, we will understand more about the difference between secured and unsecured loans to help you choose the appropriate option.
What is the Difference Between Secured and Unsecured Loans Online?
| Feature | Secured Loan Online | Unsecured Loan Online |
| Collateral Requirement | Requires an asset (home, car, gold). | No collateral required (collateral-free loan). |
| Processing Time | Gradual, as the lender must value the asset. | Faster, often processed entirely online. |
| Interest Rate | Generally lower, due to reduced lender risk. | Slightly higher due to the absence of collateral. |
| Risk to Borrower | High, as you can lose your pledged property if unpaid. | Lower, as your physical assets are safe. |
| Loan Amount | Usually higher, based on the asset's value. | Based on your income and repayment capacity. |
Common Types of Unsecured Loans
When people start looking for unsecured loan examples, they may be surprised to learn that they may already have an unsecured credit facility. Let’s explore the categories of unsecured loans to help you make an informed choice.
Personal Loan
This is one of the most popular unsecured loan offerings, with funds that can be used for a variety of needs, such as home renovations, medical emergencies or other individual needs.
Credit Cards
With every credit card usage, you’re using a revolving line of credit. A credit card generally provides an unsecured revolving line of credit, with the credit limit typically determined by factors such as your credit profile and income.
Student Loans
Some student loans are offered without any collateral or assets at risk, for tuition fees or books.
Key Benefits of Unsecured Loans
It is important to note that the majority of borrowers prefer to apply for an unsecured personal loan. The reason is that there are numerous unsecured loan benefits for salaried professionals.
First, with these loan options, your physical assets remain completely safe. You can have reduced asset-related risk with collateral-free loans in times of financial difficulties.
Second, the unsecured loan types remain streamlined and digitally processed for the borrowers. The lender does not need to evaluate any physical assets. With a digital personal loan, you need to submit minimal paperwork and receive faster loan decisions, subject to eligibility.
Further, unsecured loan options provide flexibility in repayments and loan tenure.
Important Terms to Know Before You Borrow an Unsecured Loan
Before applying for an unsecured loan, you should understand the key rates, fees, and repayment terms.
- Loan Amount: The total sum of money you are borrowing from the lender, such as a bank or NBFC.
- Interest Rate: The cost of borrowing the money, usually expressed as an annual percentage. A strong credit profile usually helps you secure a better interest rate.
- Loan Tenure: The total time you have to repay EMIs, ranging from a few months to several years.
- EMI (Equated Monthly Instalment): The fixed amount you will pay every month to clear your debt.
- Repayment Terms: The specific rules highlighting how you will pay the loan back, including any fees for late payments.
Conclusion
Unsecured loans can provide access to funds without requiring you to pledge an asset as collateral. Eligibility requirements vary by lender and may include income, employment status, credit history, repayment capacity, and other applicable criteria.
Once you’re clear about the secured vs unsecured loan differences, the process of selecting an appropriate loan option becomes clearer. Check your digital unsecured loan eligibility now and get access to funds for financial flexibility.
Frequently Asked Questions about Unsecured Loans
What is the main difference between secured and unsecured loans?
With secured loans, you need to pledge your asset (gold, car, property) to the lender. On the other hand, loans without collateral (unsecured loans) are approved based on your income and creditworthiness.
How fast can I get an unsecured personal loan?
You can get a digital personal loan much more quickly than secured loans. Digital lenders can evaluate your profile and application to disburse the funds on the same day, subject to eligibility and verification.
What documents do I need to apply for an unsecured loan?
Usually, you will need standard KYC documentation (Know Your Customer) and income proof-related documents. The lender might ask for Aadhaar details, PAN card, salary slips, bank statements, and other applicable documents.
Can I repay my unsecured loan early?
Yes, some lenders allow you to prepay the overall loan amount where applicable. You should check these repayment terms while reviewing the loan offer and select a loan offer that provides a zero-foreclosure option.
Get the Financial Support You Need Today
If you need a digital personal loan with a streamlined application process, Kreditbuddha is here to help. The digital lending platform provides access to unsecured personal loans with short repayment tenures of up to 45 days. Find safe loan options through the platform’s network of RBI-approved lending partners.
If you're a salaried professional, Kreditbuddha is the best loan application platform to secure a loan amount between ?12,000 and ?1,50,000 for a flexible 45-day tenure. The best part on the Kreditbuddha app is that you’ll get a secure application journey and minimal documentation.
