An Unsecured Loan does not need collateral to secure the loan amount. Instead, lenders check your credit score, income, and financial history to determine eligibility. This flexibility makes Unsecured Loans attractive for various purposes.
Unsecured loan meaning
An Unsecured Loan is a type of loan that doesn’t require you to pledge any assets, like a house, car, or savings, as collateral. As there’s no collateral involved, Unsecured Loans are riskier for lenders, so they often come with higher interest rates than Secured Loans. However, they offer more flexibility since you don’t need to risk losing any personal property.
You can check out Axis Bank's Unsecured Loans, available for business purposes and at feasible interest rates.
Types of unsecured loans
1. Revolving Loan
Its flexible credit facility allows you to withdraw, repay, and borrow again within a specific limit. Unlike other loans with fixed repayment schedules, it helps you access funds as needed to manage cash flow fluctuations effectively.
2. Term Loan
You'll receive the funds in a lump sum within 1 to 10 years. You can use them to purchase equipment or fund businesses. Depending on the purpose of the loan, interest rates may be fixed or variable.
3. Consolidate Loan
It combines existing debts into a single loan with one monthly payment, often at a lower interest rate. You can use it to pay off Credit Card debt or Student Loans. You should understand the terms and conditions to avoid incurring additional fees or extending the repayment period.
Benefits of unsecured loans
1. Simple application procedure
Unsecured Loans require minimal documentation. The process can be completed easily online or in person, making it convenient for those seeking quick financing solutions.
2. Collateral free
These loans do not need collateral, such as property or assets. It reduces the burden of keeping an asset as security for you.
3. Option to disburse smaller amounts
It allows you to request smaller loan amounts for specific needs. This flexibility makes it easier to manage finances and avoid unnecessary debt.
Unsecured loans vs Secured loans: which is better?
| Feature |
Unsecured Loans |
Secured Loans |
| Collateral |
No collateral required; higher risk for lenders |
Requires collateral (property, vehicle, savings, etc.) |
| Interest rates |
Higher interest rates |
Lower interest rates |
| Loan amounts |
Smaller loan amounts are available |
More significant loan amounts are possible |
| Application process |
Quick and simple application procedure |
May involve more complexity due to documentation and verification |
| Risk of loss |
No risk of losing assets if unable to repay the loan |
Risk of losing collateral if payments are missed |
How to apply for unsecured loans?
1. Check for lenders: Compare different lenders to find the best interest rates and terms that suit your needs.
2. Check eligibility: Find out the lender's eligibility criteria, including credit score, income, and employment status.
3. Collect documents: Prepare important documents like ID cards, proof of income, and bank statements.
4. Complete the application: Fill out the application form online or in person with accurate details.
5. Submit: Submit the application with all required documents.
6. Wait for approval: Lenders will review your application and notify you of their decision, often within a few days or weeks.
Also Read: Know all about Personal Loans
Conclusion
Unsecured Loans offer a flexible borrowing option for you to get funds without the need for collateral. While they provide quick access to the funds and an easy application process, you should be aware of considering valid interest rates. It will help in managing repayments effectively by avoiding any kind of debt failures.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
