What is an unsecured loan?
An unsecured loan is a loan that is not backed by collateral to guarantee the repayment. Unsecured loans check the creditworthiness of the person. The creditworthiness of the borrower is assessed based on the five C’s of credit: character, capacity, capital, collateral, and conditions. Let us look at some of its types:
1. Personal loan
A personal loan is the most common type of unsecured loan. The personal loan can also be paid in installments. You can repay the loan in equated monthly installments (EMIs). Banks and NBFCs (non-banking financial companies) offer personal loan through online and offline process.
2. Signature loans
As the name suggests, you only need to give a signature for obtaining this loan. As a borrower, your signature will be the sole security for this loan wherein you promise your lender to repay the entire loan on time without fail. One can opt for a signature loan in a bank or NBFC. The amount of the loan can be paid in installments.
3. Education loan
An education loan or student loan refers to a loan that can be utilized to pay your fees for education purposes. The best advantage of an education loan is one can enjoy a grace period during which the borrower does not have to pay anything. A student loan can also enjoy subsidies on the interest rates and flexible repayment modes. One can pay hostel fees, mess fees, course fees, library fees and other fees related to one’s academic course.
4. Instant loans
Instant loans are small loans offered mostly to salaried professionals. Few companies also provide instant loans to self-employed. The loan amount is paid when the borrower gets his salary or wages. The rates of interest are quite high than the traditional loan.
5. Joint loan
Joint loans are applied jointly with two or more persons. When you opt for a joint loan, all the applicants are considered borrowers and they are combinedly eligible for the loan.
6. Consumer durable loan
Consumer durable loans can be used to purchase a wide variety of goods such as television, refrigerators, laptops, air conditioners, smartphones and many more. Nowadays you don’t need to gather cash to make a big purchase instead apply for a consumer durable loan and make your payments on what you purchase.
7. Credit card loan
One can get a loan on a credit card for an amount that is within your credit card spending limit. You can buy what you need to by just swiping your card and pay later. You can even pay for your purchase through smart EMIs.
8. A personal line of credit
A personal line of credit is another form of an unsecured personal loan, here instead of taking the entire loan amount at once, the bank will approve a certain amount that you can payback.
This type of loan is provided by an institution other than conventional lenders such as banks or NBFCs. You can take a loan from an individual or your peers. These loans typically follow a fixed rate of interest system. The rate of interest for these loans is competitive.
10. Advance Salary Loans
They are are temporary loans offered to salaried professionals who are working in India. Like a personal loan, the interest rate of these loans is calculated every month or sometimes daily by some lenders. The foremost advantage of these loans is that they are available to those individuals with an average credit score.
An unsecured loan can be a great way to manage your debt in an emergency. However, you should weigh your options carefully because taking debt could be a long term decision, and you may have other options to consider. So it would help if you understand your needs before applying for an unsecured loan.