Personal loans are available to the borrowers for meeting unexpected needs. The lender does not ask for the purpose of the loan and thus the borrower is free to use requirements. These loans are different from loans like education or home loan which are taken for a specific purpose and the borrower needs to show proof that the loan will be used for the said purpose only. Personal loans may be used for funding a trip abroad, higher education, marriage expenses and so on.
Personal Loans and Collateral: These loans are generally available without any collateral, so one is not required to use gold, deposits or any other security or asset as deposit. This means that the lender is assuming a higher risk and due to that personal loan interest rate is higher compared to other loans. Lenders charge interest for allowing the borrower to use the funds for a specified time period and also for the risk they assume (of default) whenever they lend funds which in case of unsecured loans is higher.
Getting a Personal Loan without Collateral: As mentioned above these loan are available without a collateral so what does a lender need (from the applicant) to sanction these loans? The lender will like to be sure about getting the funds back in a timely fashion and will also like to ensure that the borrower can be trusted on not defaulting.
The following aspects help the borrower in getting the loan approved in the absence of any collateral:
Financial Stability: Since there is no collateral backing the loan the lender would like to be doubly sure about the financial stability of the person seeking the loan. They want to be sure that not only will the borrower pay the dues on time but he/she has been employed in a stable manner for some time and there is job/work continuity. Here being employed at the same place for a considerable time or if the applicant is self- employed the business being operational for a few years will help the cause. Financial stability is important for getting a loan approved.
Good Credit Health: Another aspect that instills confidence in the lender is a creditworthy applicant. A good credit score is an indication that the applicant can be trusted to repay the dues one time and that he/she has been responsible borrower in the past and is expected to remain so in future too. Credit reports also reveal if the applicant is already leveraged high or not or if he /she displays credit hungry behavior and so on. CIBIL score is a crucial factor when applying for a these loans. Getting a personal loan without CIBIL checkis difficult as very few lenders may be willing to do it moreover it is much more expensive also.
Documentation and Eligibility Criteria: No loan can be sanctioned without the applicant meeting the eligibility criteria or having the required documentation. Though documentation in case of personal loans is fairly simple yet in the absence of any collateral they assume more importance. Thus documents that support your income eligibility, proof of income continuity and KYC are required. The applicant needs to meet the age, income and other criteria set by the lender in order to avail a loan.
Apart from the other aspects it helps if one has a long term relationship with the lender that you are approaching for the loan. Thus it’s always a good idea to go to a bank that you usually bank with, have a fixed deposit or savings account and so on as it will be simpler to get a loan based on the existing relationship especially if it’s a good one.
