Often people need a fast loan with minimal processing time and that does not come with burden the need of arranging collateral. The risk of the security being confiscated is something that hinders many from actually taking a loan. So here is a type of loan that is fast and easy to get and does not demand any security or collateral from the borrower.
An unsecured loan (also commonly known as Signature loan or personal loan) can be a boon for a borrower who needs liquid money. Whether an improvement in lifestyle, a much needed investment, or expenses in personal grounds this provides a solution to meet an urgent demand for money very efficiently.
Who is eligible for unsecured loan?
Due to the higher risk the financial institution has to take from not having the security of the security or guarantee of this kind of loan the rules of underwriting tend to be stringent when compared to the secured loans. The eligibility of the borrower for this type of loan is dependant mainly on his or her credit rating. It is an evaluation of the borrower’s debt repayment capacity and credit history. Customers with at least a basic regular income and with no previous history of being a defaulter for any previous or existing loans are obviously preferred.
The borrower can be an individual or a business with the respective borrower taking the liability of repayment. There is also the method of obtaining an unsecured business loan with a personal guarantee where the individual will pay up in case the business turns out to be a defaulter. Apart from this as per general rules, the individual in all cases has to be of legal age and needs to be holder of a valid bank account with proofs of identity, and permanent address.
What is the rate of interest?
The rate of interest is higher than that of secured loans because of the high risk that the financial institution takes by giving the loan without a security against the loan. The rate of interest or APR also depends on the amount of the loan, the period and the amount of risk the institution bears. The higher the loan amount the lower the rate of interest. In the same way, the greater is the risk and the repayment period, more elevated is the APR. Generally, the maximum period of repayment varies from 2 to 3 years. Defaulting repayment or EMIs attract hefty penalties and even legal action in case of failed recovery. There being no necessity of verifying and evaluating the collateral, the processing time is reduced by a noticeable margin. Overall, this is a fast and effective way of meeting unforeseen and sudden need for liquid cash.
