Collateral free loans are loans which are provided without any mortgage or collateral. Know how these loans work, how to apply, benefits & more. Read now! There are many types of loans available in the market for borrowers to avail, depending on their requirements. Amongst these loans there is one type of loan known as collateral free loan, or loan without collateral. In this article, we’ll explain all you need to know about them.
Collateral Free LoanSnneha Lukka october 11, 2019
Collateral Free Loan Meaning
Before we get into collateral free loan meaning, it’s essential to know what collateral is in the first place. Collateral in banking terminology is any asset that is pledged by a borrower to a lender against a loan. If the borrower fails or refuses to repay the loan, the lender claims ownership of the asset. Let’s say that a borrower takes a loan from a bank for a certain amount, and provides their house as collateral against the loan. Should the borrower be unable to repay the loan back, the bank will claim legal ownership of the borrower’s house as the payment in order to recover their funds. Therefore, collateral serves as a form of security to the lender when providing loans to a borrower, in case the borrower fails to repay the loaned amount.
For example, if you take a loan of Rs. 20,000 from a lender and make late payments or don’t repay it back at all, this will negatively impact your CIBIL score which becomes lower. On the other hand, if you consistently make your EMI payments on time, this becomes recorded in your credit history and increases your credit score. Since credit or CIBIL scores are indicative to a lender about an individual’s financial habits and creditworthiness, therefore, your access to formal credit (especially when it comes to home loans and vehicle loans) is highly dependant on your CIBIL score. A higher credit score makes you eligible for larger loan amounts, as well as attractive interest rates and repayment tenures.
From the above, we can know that collateral free loan meaning is just the opposite. Collateral free loan or non collateral loan is a loan that is sanctioned by a lender, without requiring the borrower to pledge any collateral as security. They are also known as unsecured loans. Many banks, lenders and NBFCs (non-banking financial companies)are starting to provide collateral free loans to individuals and companies.
While individuals do not need to provide assets to get a loan without collateral, the loan is unsecured as the lender doesn’t have any collateral to seize in case there is a default. Therefore, the interest rate on non collateral loan is on the higher side than that of secured loans. However, you may obtain a lower interest rate for a non collateral loan if you have an excellent credit score and good credit history.
How Do Collateral Free Loans Work?
Collateral free loans are provided after the lender has checked your credit history and financial stability. Other factors such as age, employment history, and so on are also taken into consideration by the lender. The higher your credit score, the better chances of getting your non collateral loan approved at a low interest rate.
Features of Collateral Free Loans
● Flexible repayment tenure between 6 months to 5 years ● Affordable interest rates, subject to your credit history ● Quick approval ● Minimal documentation ● Disbursal in as little as 3 days ● Non collateral loan, therefore, no assets or security required
Eligibility for Collateral Free Loans
● Indian resident ● Age 22-5 ● Salaried employee ● Minimum income of Rs. 15,000 per month
How to Apply for Collateral Free Loan
At Upwards, we provide collateral free loans to eligible borrowers. Apply now and get your collateral free loan today!