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 The impact of unsecured loans on your credit history

The impact of unsecured loans on your credit history

When we are looking out for a loan whether it is to buy a new home or a vehicle or when there happens to be an emergency, it is not always that our loan is going to be sanctioned right away. There are a number of criteria that need to be met by the borrower before he can be granted a loan. One of the main factors looked at is the credit history of the borrower.

Although the credit history is usually  determined by a score (your cibil score), it is not just a matter of the score, it is also about how many loans you have taken up and how regularly you have been in repaying it. Now, when it comes to loans, there are two types mainly: Secured & Unsecured loans.

Secured Loans are the types of loans which is provided to the borrower based on a certain kind of security given. For instance, when we take up a home loan, our house is pledged in the name of the bank till the point we repay our loan.

In contrast, an unsecured loan is one where no security is required while borrowing a loan. These include, loans against credit card or personal loans and so on. One thing to be kept in mind is that, the more unsecured loans you borrow the more credit hungry you seem to the banks. Why? Well, unsecured loans are usually processed a lot more quickly as compared to secured loans which is probably the reason for their popularity. Since it is so easily obtainable especially when there is an immediate requirement to be fulfilled, unsecured loans have found more takers in the recent past.

If you have too many unsecured loans running, it shows that you are always in need of money and are unable to manage your finances well. Which is also the reason why your cibil score may also be lowered & your application rejected when you are in need.

As much as possible plan all your major expenses ahead of time and avoid borrowing too much credit, so that when you really do want a loan, you will be able to get it without much of an hassle.

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Priya Rai is a loan consultant.