Eligibility criteria for collateral-free loans

Eligibility criteria for collateral-free loans

Opening Discussion on collateral-free loans

Any credit facility availed from a lending institution (Banks or NBFC) without pledging any of the collateral/asset/security is known as a Collateral free loan or unsecured loan. Every bank and NBFC offer collateral-free loans depending upon the eligibility criteria set by themselves. 

The eligibility criteria are nothing but a set group of conditions the lender imposes. The borrower must satisfy the lending institution by fulfilling those conditions. Since these loans are unsecured, hence the risk of loss and default is on the brighter side. 

Lenders check the borrower’s creditworthiness based on some of the factors and guidelines. The Collateral free loan eligibility criteria may differ from lender to lender, a variety of assets, both moveable and immovable such as gold, vehicles, financial securities etc., can get pledged. 

In today’s business loan edition, we’ll be evaluating unsecured loan eligibility criteria and figuring out the way that lenders follow at the time of the applicant’s assessment. Along with that, we’ll also know the limit of sanctioning amount in collateral-free loans. Stay tuned to read. 

Must Read: Difference between secured and unsecured loans

Collateral-free / Unsecured loans – Defined 

As defined in the introduction part, the credit amount secured from the lending institution without pledging the collateral/asset is defined as a collateral-free loan. Here collateral denotes any asset that can be kept as security at the lending institution. In case of loan repayment failure bank can sell those assets and recover the amount given, but in Unsecured loans, the case is a bit different. 

Unsecured loans are more in the borrower’s favour and possess high risk from the lender’s perspective. To handle this challenge, lenders have set eligibility criteria to ensure the money is not compromised. Also, it comprises of high-interest rate (may vary from applicant to applicant) and repayment tenure. 

How is Creditworthiness assessed in Unsecured loans?

On a broader note, certain factors were held responsible at the time of evaluation and assessment of the applicant’s profile.  

1. Credit Score 

Whether secured, collateral-free or any other loan, the first and foremost factor that lenders will not ignore at any cost is the evaluation of credit score. The score ranges from 300-900; a score near 900 is considered excellent and more than enough to get a collateral-free loan. Generally, a score of 700 or above is considered enough to get an unsecured loan. This is the primary factor involved in checking the creditworthiness of the applicant. Also, banks will reject the application in case of a low credit score. 

Check your credit score for free.  

Read: Easy Ways to Improve CIBIL Score 

2. Steady Income 

Undoubtedly in the case of unsecured loans, banks will assess the income you receive and also will ask for the previous month’s salary slip if one is a working professional. This is done to check the repayment capacity. If you are an entity or non-individual, then get prepared with your previous Income Tax returns (ITR), Business profile, balance sheet and Profit / Loss. All these criteria are followed to check the regular/stable flow of cash.   

3. Existing Bank Balance 

The in-hand cash is also a dominating factor in the whole collateral-free loan process. The amount one currently holds becomes a conclusive factor when the bank statement is presented in front of the lending institution. Generally, the last 6 months of banking are asked, and the total expenses with respect to income are assessed. The clue regarding the borrower’s repayment capacity is also estimated. 

4. Effective Credit History & Repayment Record 

A credit history is derived from one’s habit of timely repayment of borrowed amounts and the interest rate charged. If one is regular in repaying the borrowed amount, a good history is left behind. If one has missed the repayment, the credit rating agencies will automatically degrade the repayment record and charge penalties instead.  

5. Considerable Savings 

Unsecured loans are given based on one’s income slab. Higher-income or higher savings will lead to more ease in getting the asked amount. A person having more working age gets ease in having a collateral-free loan. The set age criteria by the lender is 21-60 years. 

Interest rate and other charges!

Before finalising the lender, evaluate the charges asked, make sure you get a competitive interest rate and try to get immunity from the processing fee charged. Don’t forget to conduct a comparative analysis of interest rates offered along with features and benefits ensured by the lender. 

Eligibility criteria for Collateral free loans 

  • Applicant’s age should be within 18-60 years 
  • One must be an Indian citizen 
  • Minimum credit score of 700 or above
  • Minimum 2 years vintage for self-employed individuals 
  • Good debt-to-income ratio not exceeding 36%

Documents Required 

  • Duly filled application form 
  • Address Proof } KYC Documents like PAN, Aadhar, Voter IDs etc
  • Identity Proof 
  • Age Proof 
  • Passport-size photographs (if needed)
  • Financial Documents such as Income Tax returns, salary slips and other income documents
  • Business registration proofs – Incorporation certificate, MOA/AOA etc 

[Note: Always check the lender’s official website for precise eligibility criteria before closing the loan file.]

Benefits of collateral-free loans 

Some of the known benefits associated with collateral-free loans are 

  • No security/collateral required 
  • Flexible repayment terms
  • No end-use restrictions 
  • Ensures Quick loan approval 
  • Enhances and builds credit history 
  • Easy to Apply 
  • Competitive / Flexible interest rate 
  • Rapid processing 

Final Words 

Always be very sure, clear and concise about the associated terms and conditions related to collateral-free loans. However, being a collateral-free loan, it’s risky for the lenders, yet they ensure criteria or conditions related to it, as discussed above. One can get an unsecured loan at an interest rate starting from 16% and goes upto 35% ( depending on the applicant’s profile), along with an amount offered upto INR 75 lakhs. Contact OneNDF today to get the amount from leading lenders at a competitive interest rate. 

Give a missed call at +917810844844 or write at letstalk@oneNDF.com

Suggested Articles 

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Building a strong credit profile for Business loan approval 

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Eligibility Criteria for collateral-free Loans: Frequently Asked Questions 

Q.1 Do banks give collateral-free loans?

Collateral-free loans are those loans that do not require any collateral backing, security deposit or guarantor. 

Q.2 Which loan is guaranteed with collateral?

Secured personal loans are backed by collateral, the amount sanctioned is comparatively higher, and the interest rate charged is generally less. 

Q.3 What cannot be accepted as collateral?

Retirement accounts are not accepted as collateral in secured loans

Q.4 What are the three types of collateral?

  • Accounts receivable 
  • Inventory 
  • Tangible Assets such as Real estate, Machinery & Equipment 

Q.5 What happens when an unsecured loan is left unpaid?

Lenders will take legal recovery action against the borrower for defaulting on the loan; the rest will happen as per the court proceedings.