Why does the repayment schedule go sour for unsecured lending?

The most prevalent and marketable form of loans is the unsecured lending. The lender does not want any security or collateral against the lending. The borrower does not have to mortgage anything to avail the loan. Up front it’s a win-win situation for both the borrower and the lender. The most remarkable feature of the unsecured loans, read personal loans, is the easy availability of the personal loans.

Some important features:

Very low turn around time: You get a personal loan deposited into your account within 48 working hours.

Less Documentation: A handful of basic documents along with some source of income proof suffice the credit requirements of the lender.

Easy Installments with the flexible repayment period: You can re-pay your loan from a period ranging from 12 months to 48 months

With such flexible and easy lending norms, the bankers/financiers/lenders run a high degree of risk of losing the principal itself. In order to safeguard the portfolio profits from any such losses, a higher interest rate is charged to the customers – after all it is an unsecured lending.

A higher interest pay-out does not hurt in the short term. But as inflation eats into the daily cash inflows, the monthly repayment installments become heavier and heavier to pay, finally resulting in some kind of default – intentional or unintentional.

It does not come as a surprise that the majority of the bad credit loans customers have had a history of unsecured borrowing. This, however, does not imply that availing a secured loan will not result in a default of cash flow problems. The point is to understand one’s finances well before plunging into it.

Planning your finances is as important as planning for you health.