With great power comes great responsibility. Some want to have power; some want responsibility, but no one wants to have both. Similarly, in life, there are a lot of situations where things come in pairs, but people want to have nothing to do with one item of the pair while they would want the other one.
There were times in our childhood days when our parents bought some items that had a gift tag along with them. However, after making the purchase they would not care if or not they got the gift.
Today there are those people who want to take loans but not put collateral against them. While things like power and responsibility are bound to come together it is not necessary that loans and collateral also have to go hand in hand. Yes, today it’s possible for people to get a loan without having collateral and that is what we are going to open up about today in this article.
What is collateral?
Suppose you take a loan and fail to repay it; this would put a dent in the pocket of the lender. To avoid incurring such losses, the lender asks the borrower to give them some items as insurance. Just like when a person gives their gold away in a gold shop in exchange for cash, similarly here the person gives away an asset of theirs or the lender in exchange for a loan. This item given against a loan is what is called collateral.
Collateral free loan and how to get it?
Collateral free loan, or a loan without security call it whatever you want, is a loan agreement in which the borrower is not required to keep any item of theirs with the lender. Such loans may command a different rate of interest compared to other types of loans and other than that there might be different terms and conditions involved in getting these types of loans.
A collateral loan can be obtained by people under various government schemes. A few ways to get a collateral-free loan would be:
- MUDRA loan
Micro Units Development and Refinance Agency or MUDRA scheme exist for getting loans to small businesses, start-ups and non-corporate spaces. Loans under this scheme are collateral-free and can be availed by the people who are eligible to opt for these schemes. Under this scheme, there are three types of categories. In the first category, a person or company can borrow the amount of 50,000 rupees. Under the second category, they can take up the amount of up to 5 lakh as a loan. The final category enables the person to take a loan of up to 10 lakhs.
- Stand-Up India Scheme
A scheme introduced by the government to encourage SC/ST and women sections of the society, this business loan without security aims at getting the concerned person a loan anywhere between 10 lakh to 1 crore rupees. The person taking the loan can invest it in the manufacturing or trading sector and the loan needs to be repaid in a tenure of 7 years.
Credit Guarantee Fund Scheme for Micro and Small Enterprises is a scheme that can get a new or existing enterprise a 1 crore loan without giving any collateral. A lot of banks are authorised to provide this service to eligible people.
- Coir Udyami Yojana
This scheme aims at providing collateral-free loans to people for setting up coir units across India. These loans need to be paid within seven years.
A lot of other such schemes exist which cater to people from different backgrounds and gets them collateral-free loans. These loans also come with certain benefits which we will now look at.
Benefits of collateral-free loans
- The first and most obvious benefit of getting a collateral-free loan is that there is no need to risk or place any collateral against the borrowed sum.
- These loans are given at a lower rate of interest and thus may attract a lot of people which may make the government schemes a hit.
- The repayment of such loans is easier and more flexible when compared to other types of loans.
- Your credit history is not a big concern when processing collateral-free loans, thus, these loans may be easier to avail of.
- The process of application of these loans is much easier and smoother when compared to getting other types of loans.
- These loans usually help the poor and backward people of the society and thus it is a noble loan providing system/scheme.
Now that you know how to get collateral-free loans it’s time to get going and apply for the loan that you have always wanted for expanding your business. Conduct the necessary research, check the appropriate scheme for your business and get your business back on track with collateral-free loans.