Pros & Cons of Unsecured Loans

Loans are mainly of two types - Secured loans and unsecured loans. Secured loans are those loans that are availed on the security of an asset. Typical examples of secured loans are home loans, vehicle loans, gold loans, loans against fixed deposits, etc. On the other hand, unsecured loans are those loans that are allowed without the security of any underlying asset. The best examples of an unsecured loan are personal loans or credit cards. Personal loans are one of the widely availed loans in India. According to the Reserve Bank of India, unsecured personal loans account for 8% of the credit portfolio of banks in India. Personal loans grew at a rate of 20% in the past year. Personal loans can be availed easily from a number of sources like banks, NBFCs, and online fintech lenders. The biggest advantage of a personal loan is that there is no requirement of security, so even if the loan is not paid back on time, then you will not have anything to lose, like in a secured loan. Let us explore the pros and cons of availing loans from each of the sources mentioned above.

Pros and Cons of Unsecured Personal Loans from Banks

Banks are the largest financial institutions in a country and are the first source for funds for many. They are also the largest lenders of personal loans:

Pros of Personal Loans from Banks

Lesser Interest Rates than other Sources for a Personal Loan

Personal loans from banks carry the lowest rate of interest than other sources like fintech lenders or NBFCs. The rate of interest for personal loans from banks starts from 10.5%.
Special Privileges for the Account Holders

When you avail of a personal loan from a bank where you already have an account and have been maintaining a good relationship with the bank, then you may be allowed certain privileges like lesser processing fee, etc.
Opportunity to Avail Pre-Approved Loan

Banks often come out with pre-approved loan offers for some of its customers who show good levels of creditworthiness and maintain good account balances at all times. These loans are pre-approved and help you avail instant personal loans, sometimes at better terms and conditions.
Possibility of Availing Higher Loan Amounts

The upper limit of personal loans from banks can go higher than the ones offered by fintech lenders. For Ex: Some banks allow personal loans of up to Rs 25 lakh.

Cons of Personal Loans from Banks

Stringent Eligibility Conditions

The eligibility conditions to avail an unsecured personal loan from banks are quite strict. They look for higher levels of creditworthiness, higher minimum monthly income or employment with blue-chip companies
Longer Processing Time

Though banks have fast-tracked their processes, they may still take from 3-5 days to process a personal loan application.
Rigid Repayment Structure

Personal loans from the bank come with a strict repayment structure like a penalty on prepayment, allowing prepayment only after a certain period of time, etc.

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