Collateral Free Personal Loan: What does it mean

What is collateral and collateral loan?

 A ‘collateral’ is an asset or precious thing that must be pledged as security for a loan. The collateral can be repossessed when the loan is repaid, and if the borrower fails to pay, the lender keeps the collateral.

A collateral-free loan is given to the borrower with no collateral involved. In literal terms, this means that even if you have nothing to pledge or invest, you may approach a lender and borrow money at a fixed rate of interest.

Why do we need a collateral-free loan?

Taking into account how businesses’ demands are changing, we can say that, if you require growing your worth, you require to start investing in different plans of both the banks and government. As we know nowadays the government is providing every necessary facility for a person to grow. Because of the pandemic, many industries and business ideas are outside the field of growth to overcome that they require a collateral-free loan, and there are many other reasons too: 

1. To start up a new business

• You need money to have a seasonal business, and to start a source for yourself. So that you can enjoy a happy life.

2.  Personal loans for employees

• In case your estimated amount for expenditure crossed its limit and you are in need of money, you can count on it.

3. Refinance your debts

• If your plan for repaying money somehow is delayed, but your deadline for repayment is not, you can use the money to repay the debt and maintain your credit score.

4. You can make a partial payment when you acquire house loans, vehicle loans, or other personal loans

• You need money within your hand just in case it might come handy if something comes up, you may take money from the loan and pay a part of the home loan/ vehicle loan/other personal loans so that you can have something of your own at the end.

5. For education fees

• Many parents are unable to pay the fees of students in time but due to some situations and time, they anyhow require having money, take the example of tuition fees, books, college charges, in such cases they can take benefit of this loan.

6. Any medical emergencies

• It is the most crucial situation because one can not control the timing of these, you may be well aware of your health but in an instant, you or your family may need money to get medical treatment there it can be a lifesaver.

7. For financial support that exceeds your budget

• In case you are having a wedding, birthday, or any other celebration, in order to make your celebration a grand one, you spend money, but that is not enough so in that time you can use the money to make it successful.

What are the benefits of taking a collateral-free loan?

 Collateral-free loans are especially advantageous for businesses that do not have a good credit score and are thus unable to obtain financing from standard lenders. 

1. There is no requirement for collateral or a third-party guarantee.
2. Repayment terms are flexible and have different options.
3. Interest rates are both reasonable and fair in most aspects.
4. Applications are processed quickly and without complications, that’s because the credit real-time processing system approves them automatically.
5. There are no hidden costs.
6. You can have your loan approved and money transferred to your account within 72 hours.
7. After paying the one-time processing charge of 2 to 3 per cent, the loan can be renewed for the same sanctioned amount.

How to apply for a collateral-free loan?

 If you are applying through online websites, you need to fill up the necessary documents such as:

1. Bank statement of last 12 months
2. PAN card
3. GST and IT filing returns
4. Aadhaar card
5. Proof of business registration is required

What are the requirements to get a loan?

1. You should have a business plan or any other valid reason to get a collateral-free loan.
2. The applicant must be an Indian citizen.
3. You should have a CIBIL score of 685 or more.
4. Applicant’s age must be between 24 years and 70 years.
5. You should be running any start-up for at least 3 years.

Necessary things to know before taking a collateral-free loan

 Before applying for a loan, it is important to know all the favourable and unfavourable aspects of the loan. Here you need to know the rate of interest you will be getting while taking the loan, the repayment period, the hidden charges, the customer service, and the understanding of the loan provider. Let’s see some of these facts:

• The minimum rate of interest is 10% and it should not exceed the PLR(Prime Lending Rates) and it should not exceed 36%.
• The period you’ll have to start repaying your loan.
• Processing and other charges that you will have to pay.
• You will or will not be able to get tax benefits.
• The loan amount you are seeking from a loan provider.
• All your KYC documents should be checked and verified thoroughly before applying for a loan.
• Read terms and conditions from the lender as it would provide you security against any unseen charges.

Conclusion: 

Anyone who is looking for a personal loan but is unable to find one because of not having anything to offer the bank or want some money in emergencies but without collateral in such cases, you can always count on a collateral-free loan, as they provide you with money without investigating much about your property. There is one thing we should look forward to: banks or any lender will not provide you money unless they find you’re capable of paying it back with interest. So it is best for all who are thinking of getting a loan to have a good credit score and have a second plan in advance just in case you need it to repay.