Unsecured Loan Interest Rate
An unsecured loan means that you do not need to pledge any collateral or asset in order to avail the loan. Generally, unsecured loans are personal loans. The end use of the loan could be anything—to fund your child's wedding, to fund your dream vacation, for a medical emergency or any other personal emergency. It could be used as a debt consolidation tool as well.
It is important to note that unsecured loans are among the most expensive loans in the market. They come with the highest interest rates since they are unsecured by any collateral. This is because the lender has no safeguard against any potential customer default.
The interest rate on an unsecured loan could range from as low as 12.99% to as high as 32% per annum. It is influenced by a variety of factors.
Factors Affecting Interest Rate on Unsecured Loans
Your borrowing history and credit score: Lenders first consider your borrowing history to evaluate your repayment ability. With an unsecured loan, lenders are need to know your past credit behavior. If you have a good track record of making loan repayments on time, it will be reflected in your credit score. The higher your credit score, the better the interest rate will be. Having a good credit scorer indicates that you are a responsible borrower and lenders are confident of lending to you. The additional benefit of having a good track record of fulfilling your debt obligations is that you might be able to negotiate a lower interest rate with your lender.
Your loan amount as compared to your annual income: Your loan amount is taken into consideration while deciding on the interest rate. If your loan amount is a small percentage of your annual income, then your interest rate will tend to be lower. Likewise, if your loan amount is a high percentage of your annual income, then lenders might not be confident about your repayment capacity and might sanction the loan amount at unfavorable interest rates.
Your relationship with the bank: If you are a long-time customer with your lender, then you might be able to score a low interest rate and other favorable terms. You will also be eligible for their special offers. So, make sure you get the best deal if you are an existing customer!
How to apply for an unsecured loan in India?
There are several ways to go about applying for an unsecured loan.
- You can apply directly online at the lender's website
- You can go in person to the nearest branch with the required documentation
- You can contact the customer care department of your lender