Unsecured loan is a loan that are given in absence of any security guarantees. Income proof is required to get the loans. Salary slips, income tax returns, etc are considered as an income proof. Passport, driving license, electricity bills, etc are taken as residence proof. PAN card can be produced as a photo ID proof.
After seeing of all documents, the bank usually consider other factors such as the applicant credit history, age, and so on before granting a loan. Credit cards, personal loans, are some kinds of unsecured loans. Unsecured loan are taken in order to meet unexpected expenses or even to meet the costs related to the purchase of consumer goods such as refrigerators, appliances, etc. These loans may also be taken up to cover expenses for pleasure trips like a foreign vacations. The rate interest associated with an unsecured loan is much higher than the secured loans. This can be anywhere from 15% to 27.5% per year. The loan is usually structured in the form of Equated Monthly Installments and must be repaid over a certain period of time. It can also range from anywhere between 12 months and 60 months, depending on the preferences of the lending institution and also the desire of the borrowers.
It is always recommended to take a term insurance policy equivalent to the amount of loan. This is done to free the family members from the liability of paying up a loan in the event of any unfortune demise.
Loans should be considered with caution. They are a great tool for urgent financial needs, but loans must not be taken for pleasure or out of habit.