Author: Credit Sudhaar

Secured Or Unsecured Personal Loan: Which One Should You Go For?

If you are looking for a personal loan, you must have noticed that there are two types of personal loans- Secured and Unsecured. Let’s take a look at the prime differences between these two options and the factors based on which one can decide which one to go for.

The fundamental difference is what stands behind these loans. A secured loan is backed by a collateral. In this case you agree to give an asset that acts as a guarantee for the loan. It serves as a security for the lender and protects him from losses. In case you do not make the repayments, your asset is claimed and sold off to recover the debt amount you owed to the bank. Therefore before going with this option one must be sure of one’s ability to make the repayments.

Unsecured loans do not have any collateral. Hence you do not stand a risk of losing any of your asset even in case you default. The only assurance that the lender has that you will repay your debt is your word and your history of past credit behavior. Hence lenders carefully evaluate your personal information like income, current debts, CIBIL Score and report to assess the level of risk involved in lending you money.

Even though the borrower risks losing his asset, he may still go with a secured loan under following circumstances.

When you need a higher Loan Amount

The amount of loan that you can get sanctioned is usually higher in case of secured loans. Since unsecured loans are riskier for the lenders they do not approve very huge amounts.

When you have a low CIBIL Score

In order to qualify for an unsecured loan, one generally needs a high CIBIL score. A good credit standing helps in winning the trust of the lenders. But if your CIBIL score isn’t high enough to get easy approval for unsecured loan, you may apply for a secured loan. Since the risk of the lenders is lower in this case, they do not have strict rules of having a minimum score. Hence they are easier to qualify for.

When interest cost difference is substantial

Secured personal loan interest rates are usually lower than the unsecured ones. One gets better terms and conditions and a longer duration for repayments. A longer term means that the monthly repayments will be smaller. Hence, if you have an asset to put as a collateral and you are sure of your ability to repay the debt, it is a wise decision to opt for a secured loan to save on interest costs.

However, processing of a secured loan may take a little longer. The lender may want to get the collateral valued to make sure that it is enough to cover the borrowed amount. The processing fees and other charges would be higher too. An unsecured loan becomes a better choice under following circumstances

  • When one needs to borrow a small amount of money for a short period of time
  • When one has a stellar credit profile and an excellent CIBIL score that helps one to qualify for the best personal loan interest rates.
  • When you do not have any collateral to back your loan, or you do not want to put your assets at risk.

Defaulting on loans

Defaulting on secured as well as unsecured loans will affect your credit report and CIBIL score negatively. If you default on payments of a secured loan, the lender can legally take possession of the asset. The proceeds of the sale will be used to settle the debt. In case of unsecured loans, the bank cannot claim your property. But it can put your account into collections and take legal action to recover its debt. Late payments, Missed payments and account that go on collections will severely tarnish your credit profile. When potential lenders check your credit history, such remarks will deter them from lending you money.

Check your CIBIL score today, and find out whether you can qualify for the best loan interest rates. This will help you start your decision making process.

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Is It Possible To Raise The Score By 50 Points In A Month?

Credit score is a statistical reflection of credit behavior over the years and credit history starts from the first loan or card you had till the current times. So one action does not make or break the score but each action related to debt does contribute to the ultimate score, some contributing more than others. So paying regularly or missing payments is more important than loan enquiries as repayment history contributes 35% to the score calculation. If you have multiple loans running concurrently then the importance of each EMI would be less than what it would be if there was only a single loan running. It is also important to remember recent events are more important than the older ones.

So whether it is possible or not to improve your score by 50 points will depend on a host of factors specific to a person’s credit report and various inclusions in it.

Ways to Improve Credit Score in a Month:

Before figuring out the best way to improve CIBIL score it is important to get your CIBIL report and go through it in detail and understand what the improvement areas are. The two quickest ways to improve your credit score are; removing any old dues and disputing any errors.

When going through your credit report you may realize that the score is low not because of something you did but due to an error caused by somebody else. So there might be times when the cause of a low score might be inaccurate reporting by a lender of a missed payment or including a loan in your report that does not belong to you. Sometimes these errors can happen at the level of the credit rating agency too. Thus as soon as you spot the error you need to get in touch with the rating agency and follow the dispute resolution process laid down by them. It takes usually a month to get any dispute resolved and getting the erroneous item removed from the report could boost your score immediately.

Another quick way to improve the score is to settle old issues that may be there in your report. Unpaid dues on a credit card that have been piling up, a loan that has been paid in full but the NOC has not been taken, a disputed loan on your report are sure to cause it to fall down. Getting the NOC or paying of a disputed amount are quick ways for a bad credit fix. When paying old dues ensure that the account is reported as “paid” and not settled. However once you do that make sure to get your credit report after that to see if the same has been updated in the report.

A Few More Ways That Can Help:

While the two ways mentioned above can help you up your score quickly there are a few other ways also that can come to your rescue, maybe not so quickly but they will definitely have a positive impact on the credit score over time:

  • Keep the credit utilization under 35%. After repayment history this is the most important factor that influences credit score calculation. So keeping the credit card spending less than 35% of the sanctioned card/s limit can help to a great extent.
  • You could get your credit limit enhanced if you are eligible for it and your credit card spending is more than 35% of the sanctioned limit but you do manage to pay on time.
  • Avoid making any loan inquiries when you are trying to improve your score in a hurry.
  • Also do continue to pay all your dues on time and do not miss any payments, as repayment history is very important for any credit score.

So to sum it up it may be possible to increase you score by 50 points in a month depending on various factors, however it is always best to remember that credit rating is a long term process and one must follow the basic guidelines to remain credit healthy.

I Have Too Many Medical Expenses! Should I Take a Personal Loan?

It’s no secret that healthcare has become quite expensive today. Forget about the treatments for critical health conditions, even small medical issues can make a big dent in your savings. However, that’s not the real problem. The real problem is when you the medical expenses become too high for you to handle. When this happens, what are you to do?

There are three possible ways to manage medical expenses:

Insurance

If you already have an insurance cover, then you will be able to save some or all of the medical expenses depending on the cover limit.  However, if your expenses exceed the insurance sum, then you may need to arrange the remaining amount through any of the next two methods.

Credit Card

A credit card is extremely useful when you are traveling and don’t want to carry a lot of cash with you, or want to enjoy special discounts and perks when shopping online, or even just to buy expensive items on EMI basis. However, you can also use a credit card to pay for urgent medical expenses, especially when you are having trouble getting a loan for low cibil score.

If your medical bills are not too high, then your credit card(s) will be able to cover them in most cases. However, if the total amount exceeds a few lakhs, then it may be difficult to cover it all without looking into personal loans.

Personal Loan

When your medical bills are too high, then personal loans are your best bet. This is because these loans can be obtained for any valid reason, and healthcare is one of them. Also, there is usually a very high upper limit on the maximum amount you can apply for. That said, it still has some problems, which are:

Disbursal Period:

Traditional personal loans can take up to a week or more for a lender to approve. That too if you are offering collateral such as your house, stocks, etc. Since medical expenses often demand urgency, this option may not work for you.

Difficulty in Approval:

If you need a loan for low CIBIL score then it can become challenging to convince a lender. This is because most of them look for a CIBIL score of 750 or more. If yours is lower than this, then you may face a lot of rejections, especially when the loan is unsecured (without collateral).

A much better way to get a personal loan is to approach an NBFC (Non-Banking Financing Company). This is because the new-age finance companies offer flexible loan products that come with numerous advantages, such as:

  • Fast disbursals: A number of fintech startups offer instant loan disbursals. In fact, if you have the right documents, then you can expect to get your money in less than 15-30 minutes!
  • Easy Process: Another major benefit of an NBFC is that their loan procedure is simpler and convenient. Most of them have their own apps which you can download on your smartphone to apply for the loan on the go and at any time of the day. The paperwork requirements and formalities are also way more lenient than the traditional lenders.
  • Easy Repayment: Even the loan repayment is easier with an NBFC. This is because of flexible EMIs. In other words, you don’t have to pay a fixed EMI every month. Instead, you can increase or decrease the EMI amount from time to time depending on how much amount you are comfortable with.

Bottom Line

To sum it up, personal loans are one of the best options for paying your medical bills. That said, you still want to be careful about a few things. One of these is your credit score.

Just like other types of loans, a medical loan also requires attention to detail. You must take utmost care to not delay a single EMI and repay the loan on time. This is because your repayment history plays the biggest role in your score calculation. You must also never apply for a loan at multiple banks at the same time because multiple inquiries for your credit report also affects the score negatively.