Is an unsecured loan good or bad? Essential details you need to know
15 June, 2025 | 11:01 IST
These days, cash and UPI payments are preferred means of transaction for many, but the reality is that most of us need to depend on credit to manage several big or unexpected expenses. Whether you’re planning to buy a house or a car, start or expand a business, renovate your home, or fund higher education, opting for a loan may help you meet your immediate need for money. The unsecured loans provide a lump sum amount that you can pay in instalments, making it convenient for clearing your debt without default.
When exploring loan options, you’ll usually need to choose between secured and unsecured loans. Secured loans require you to pledge an asset, such as property or a vehicle, as collateral in case you’re unable to repay the loan. On the other hand, unsecured loans don’t demand any collateral. Instead, lenders assess your financial profile before approving the loan.
An unsecured loan is a type of personal loan that’s granted without requiring any property or asset as collateral. Instead, approval and loan terms depend largely on the borrower’s creditworthiness, with lenders placing significant emphasis on credit scores and repayment history. Unlike secured loans such as home or car loans — where the asset itself acts as security — unsecured loans are based solely on your financial reliability. Because there is no asset backing the loan, lenders usually charge higher interest rates on unsecured loans compared to secured ones, reflecting the increased risk they assume.
You can apply for personal loans up to Rs 50 lakhs through the Moneycontrol app or website, which lets you compare offers from eight lenders. The process is completely digital, and some lenders can approve and disburse the funds in just minutes. And the interest rates start at 10.5% per annum.
There are several unsecured loan types available to borrowers:
Personal loans: The most common form, offered by banks and NBFCs for purposes like weddings, travel, home renovation, or emergencies.
Credit cards: Technically a revolving form of unsecured credit, it is useful for everyday purchases.
Student loans (without collateral): Some institutions offer student loans without collateral for higher education, based on the applicant’s and co-borrower's profiles.
Business Loans: For small and medium enterprises, these loans help meet working capital or expansion needs.
Understanding the various unsecured loan types helps you pick the one most suited to your needs.
No collateral required: One of the biggest advantages is that you don’t need to pledge any assets. This makes it accessible to those who do not own property or other valuable assets.
Fast approval and disbursal: Most unsecured loans offer instant approvals with minimal paperwork. The amount can be disbursed within 24 to 72 hours in many cases.
Flexible end-use: Unlike home or auto loans, these loans can be used for any personal financial need. There's no need to justify the expense to the lender.
Improves credit score (when managed well): If you repay your instalments on time, it positively impacts your credit score. This, in turn, can help you qualify for better loan terms in the future.
High interest rates: Since there’s no collateral, the unsecured loan interest rate is usually higher than that of secured loans. Rates can range from 10% to over 25% per annum, depending on your credit profile and the lender.
Shorter tenures: Most unsecured loans in India have tenures ranging from 12 months to 60 months. Shorter repayment periods mean higher EMIs, which may strain your monthly budget.
Strict eligibility criteria: Lenders evaluate your income, employment history, existing liabilities and most importantly, your credit score. A poor credit score can lead to loan rejection or very high unsecured loan rates.
Risk of debt trap: Due to the ease of access and higher unsecured loan interest rates, it’s easy for borrowers to get caught in a cycle of debt, especially if used irresponsibly or taken without a repayment plan.
When Is An Unsecured Loan A Good Option?
An unsecured loan can be a good choice under specific conditions:
You need quick funds for an urgent requirement.
You have a strong credit score, usually 750 or more, ensuring lower unsecured loan rates.
You have a steady income and can manage EMIs comfortably.
You don’t want to risk losing a valuable asset by pledging it as collateral.
When Is It Better To Avoid An Unsecured Loan?
It’s best to avoid taking an unsecured loan if:
You already have high existing EMIs or credit card dues.
Your credit score is low, which could lead to higher unsecured loan interest rates.
You're borrowing to fund a lifestyle choice instead of a necessity.
You do not have a clear plan for repayment.
How To Manage An Unsecured Loan Wisely
Compare lenders: Always compare unsecured loan rates and processing fees from multiple lenders before applying.
Read the fine print: Watch out for hidden charges such as prepayment penalties, late payment fees and insurance costs.
Use EMI calculators: Use online EMI calculators to estimate your monthly burden and assess affordability.
Borrow only what you need: Don't be tempted to borrow more just because you're eligible for it.
Avoid multiple loans: Taking too many loans simultaneously can negatively impact your credit score and financial stability.
Is An Unsecured Loan Good Or Bad?
There is no one-size-fits-all answer. An unsecured loan can be a valuable tool in your financial arsenal when used responsibly. It offers quick access to funds without the hassle of pledging collateral. But the higher unsecured loan interest rates and shorter tenure can make repayment challenging if not planned well.
Through the Moneycontrol platform, both the app and website, personal loans up to Rs 50 lakhs are available with comparisons from eight major lenders. The entire application is digital, and certain lenders provide approval and disbursement within minutes. Starting at an interest rate of 10.5% per annum, these personal loans offer a convenient option to finance a used car or handle other immediate financial needs.
Summary
Need funds without pledging any collateral? Unsecured loans offer quick access to money with flexible usage but come with higher interest rates and stricter eligibility checks.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
100% Digital
Quick Disbursal
Low Interest Rates
