In the financial year 2015 and 2018 personal loans, small and medium enterprises and credit loans under the unsecured loan market reached a compound annual growth rate of 27%. This phenomenal growth rate was almost four times the growth in bank credit. It came to pass at a time when banks were struggling with corporate loans that went bad. As per CRISIL (Credit Rating Information Services of India Limited) research the total unsecured loan may reach a 24 to 25% compound annual growth rate by the financial year 2021 owing to higher credit penetration in extant markets and due to increased emphasis of lenders on smaller cities.
This is the simplest of all unsecured loans as it can be sanctioned on the basis of your signature only. Your signature would be deemed as an assurance for repayment of this loan where you promise your lender to repay the loan in time. This loan can be acquired from a bank or an NBFC (Non-Banking Financial Company). A signature loan shall be paid in installments on a monthly basis until the loan is fully paid.
This form of a loan is the common of all loans as one doesn’t need to state the reason for availing this loan. This loan can also be paid in installments over a fixed tenure. This loan can be acquired from a bank or an NBFC (Non-Banking Financial Company) either offline or online.
It is very easy to understand that this loan is used to fund education courses. It is also referred to as a student loan. It has the moratorium feature where a borrower doesn’t require paying anything for a period of time. It also offers interest rate subsidy and flexible repayment modes.
This is a form of loan which can be borrowed by an individual or your peers and not from banks or NBFCs. It has a fixed interest rate. It is maybe an easy form of obtaining loans but it is quite risky as compared to loans from banks.
Read, Also: Secured vs. Unsecured Loans in a Nutshell.
The growth in the unsecured loan market is owing to multiple factors as discussed below.
The basic difference between secured and unsecured loans is provided in the table made below.
|Aspects||Secured loans||Unsecured loans|
|Collateral||Collateral is required during the application process in this form of loan.||Customers don’t need to give any collateral for availing loans under this category.|
|Consequences of loan default||In case of default the borrower may lose his assets.||In case of default the borrower doesn’t have any risk of losing his assets as no collateral is provided.|
|Parameter of Risk||The default risk is lower in this form of loans.||It has a higher rate of risk of default as no collateral is provided.|
|Rate of interest||As the risk is less, therefore, the rate of interest is lower for loans.||As the risk factor is higher in this form of loans therefore the rate of interest is on the higher side.|
|Tenure of loan||It has slightly longer tenure.||It has a short tenure.|
Despite the relatively slow progress of the Indian economy in the last few years the unsecured loan market in India has seen good growth. It may be linked to consumers change in mindset where they are looking for smaller ticket loans.
Also, Read: Things Your Business Loan Application Must Include.