Unsecured Loans

Why Unsecured Loans Matter

For those facing urgent financial needs, unsecured loans offer a way to bridge gaps without risking assets. They are especially helpful for middle-class families to pay for education, weddings, or medical costs. Also, repaying these loans on time builds a strong credit history. This improves their chances for future borrowing.

Limitations of Unsecured Loans

Despite their advantages, unsecured loans come with notable downsides. Borrowing limits are lower, typically between ₹1 lakh to ₹50 lakh, making them unsuitable for very large financial needs. Defaults can severely damage credit scores, reducing future access to credit. Rising defaults have led to stricter RBI rules. Now, lenders face higher risk weights, which makes approvals tougher.

Practical Tips for Managing Unsecured Loans

To avoid financial strain, borrowers should limit repayments to 20–30% of their income. Tackling high-interest debts first using the avalanche method can reduce interest costs. It’s also crucial to avoid multiple concurrent loans, as excessive borrowing increases default risks. In times of hardship, negotiating with lenders for tenure extensions or lower rates can provide relief. Prepaying the loan can reduce overall interest costs, but borrowers should check for any prepayment penalties before doing so.

Unsecured loans should only be used for essential and short-term needs. Responsible borrowing and disciplined repayment are key to maximising their benefits while avoiding debt traps.