What is an unsecured loan?
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An unsecured loan in India is a loan that doesn't require any collateral or security (like property, gold, or fixed deposits). Personal loans, credit cards, and student loans are common examples. Since there's no asset backing, lenders rely heavily on your credit score (typically 700+ required), income stability, employment history, and debt-to-income ratio. Interest rates are higher (10-24% p.a.) compared to secured loans like home loans (8-10% p.a.) to compensate for higher lender risk. If you default, lenders can take legal action and impact your CIBIL score but cannot seize specific assets.
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An unsecured loan doesn't require you to pledge any property or assets as guarantee. The lender gives you money based on your credit score and income alone. Personal loans are the most common type of unsecured loan, which is why they have higher interest rates than home or car loans.
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