Traditionally, consumers can avail personal loans without pledging any collateral or security. However, some lenders have their loan against security, gold loan and other secured loans without end-usage restrictions as secured personal loans. While the unsecured nature of personal loans leads to quicker processing, it also results in more stringent loan eligibility conditions than most secured credit options. Here are a few tips on increasing your chances of availing unsecured personal loans.

Tips for availing personal loans without security

Check with banks/NBFCs with which you have deposits, loans or credit cards

Many banks and NBFCs offer loans at preferential interest rates to their existing customers. Therefore, consumers looking for personal loans without security should first get a quote from banks/NBFCs with which they have deposits/loans or credit cards. They should use personal loan interest rates and other loan features offered by their banks/NBFCs as a benchmark to compare personal loan offerings of other banks and NBFCs. As pre-approved instant personal loans are extended only to their existing customers based on their credit profile, consumers should check if any such offer is available to them from their banks or NBFCs.

Compare interest rates offered by other lenders

After checking for pre-approved offers, compare interest rates offered by as many lenders as possible. To make the task easier, visit online financial marketplaces, which allows potential personal loan borrowers to compare personal loan offers from multiple banks and NBFCs on the basis of various loan features such as their interest rates, loan amount, processing charges, etc. Also remember that lenders offer different interest rates to different customers based on how their credit profiles are assessed against factors such as credit score, monthly income and employer’s profile of the applicant. Some lenders also offer concessions in personal loan interest rates, processing fees and/or other charges during the festive season.

Check your EMI affordability

Lenders prefer sanctioning personal loans to applicants whose total ongoing loan repayment obligations, including EMI of the proposed loan, are within 50% to 55% of their total monthly income. For instance, individuals seeking to avail SBI Personal Loan need to contain their total EMIs (including the EMI of the proposed loan) within 50% of their net monthly income.

Hence, consumers seeking personal loans should use online personal loan EMI calculators to determine their optimum EMI after factoring in their existing loan EMIs, unavoidable monthly expenses and monthly contribution towards their unavoidable financial goals. Doing this would help prospective borrowers determine optimum loan EMI and loan tenure. This would also increase their odds of availing the loan and ensure their timely loan repayment without compromising on their monthly expenses or crucial investments.

Avoid multiple applications within a short span

Credit score is probably the first thing that lenders look into when assessing personal loan applications. Such credit report fetches made by the lenders are known as hard enquiries. These hard enquiries reflect in the applicant’s credit report and decrease his credit score by a few points.

Making multiple hard enquiries within a short span would decrease the credit score faster. Therefore, instead of directly applying with the lenders, visit online financial marketplaces to pick the best suited personal loan offer from multiple loan options. Credit report enquiries generated through these online financial marketplaces are considered as soft enquiries and hence they have no impact on the applicant’s credit score.

Check turnaround time for personal loan disbursal 

The time taken to disburse a loan varies from one lender to another and depends on multiple factors including the type of loan, credit profile of the applicant, lender's approval process, etc. Usually, pre-approved personal loans are disbursed within 24 hours; in some cases, within a few minutes. Personal loans availed through online digital onboarding process are usually disbursed within 2 days; whereas onboarding through offline channels might take longer. Hence, before applying for personal loan without security, consumers should check if the lender's loan approval and disbursal time meets with the time within which they need their funds.

Check terms related to processing fees and prepayment charges

Banks and NBFCs levy processing fees and/or admin/login fees to recover the cost incurred during the assessment and processing of an applicant’s loan application. As the processing fee of a personal loan usually goes up to 2% of the loan amount, this additional charge can constitute a major proportion of your total loan amount.

Some banks/NBFCs limit the processing fee amount, regardless of the loan amount and some waive them off during festival offers. Therefore, consumers should always compare processing fees levied by multiple lenders before applying for the personal loan.

Note that RBI restricts banks and NBFCs from levying prepayment/foreclosure charges on floating rate personal loans only. Lenders are free to levy these charges on fixed rate personal loans. Also, many lenders do not allow their personal loan borrowers from foreclosing or prepaying their personal loans until the repayment until they have paid a predetermined number of EMIs. Thus, personal loan applicants planning to keep their prepayment options open should consider the prepayment related terms and conditions during the loan comparison process.