Taking care of expenses is and will always be to be a part of your life. While regular expenditures come under your monthly income, there might be some unexpected expenses that are out of your budget. This is where you can take help of a personal loan to clear off any bills at handhand.
Now, banks offer secured loans and unsecured loans. Secured loans require the borrower to pledge collateral to the lender. Since collateral is involved, the risk is lower for lenders. For unsecured loans, there is no collateral involved. However, since this increases the lender’s risk, the interest rate charged for an unsecured loan is usually higher as compared to a secured loan.
What are the different types of unsecured loans?
Here are some of the common examples of unsecured loans:
- Personal loans
Personal loans, simply put, can be defined as the type of loans that one can apply for to take care of any personal expense. The reasons can range from travel loans and even for a wedding ceremony. In fact, a marriage loan is one of the different variants of personal loans.
- Student loans
There are many who dream of pursuing higher education but are worried about the expensive academic fees they would have to incur. Those looking to move abroad for their studies have to face higher expenses, including accommodation, travel, living expenses, etc. This is where student loans can be helpful in providing the finances required.
Why have these loans gained popularity over the years?
Now that you know what the different types of unsecured loans are, let’s look at the benefits that are offered by them:
- You can arrange for the required funds
Personal emergencies can arise anytime without warning. At such times, you may not have the time to run around arranging for funds to take care of the situation. You can apply for an unsecured personal loan online and quickly arrange for the required finances.
- Banks don’t require collateral for getting the loan approved
Collateral can be defined as something valuable that the bank requires the borrower to pledge. This collateral would be used as compensation in case you were to fail in repaying the loan. On the other hand, you are not required to produce collateral for things like overseas education or starting a business. Before approving the loan, the lending party will thoroughly assess if you can repay the loan.
- The application process for unsecured loans is quite simple and quick
Another reason for the popularity of these loans is that a lot of times, the application process for unsecured personal loans does not involve excessive paperwork. All that’s required of you is proper financial documents and more importantly a decent credit score.
Other than the three above, there are several other reasons why in recent years these loans have grown. It is important to note that different banks offer different loan amounts. For instance, IDFC FIRST Bank offers collateral-free student loans of up to ₹75 lakhs.