Unsecured Loan Limit Explained: What You Need to Know for Your Borrowing Needs

When life throws financial challenges your way, don’t fret! Many individuals like yourself have discovered the secret weapon for overcoming financial needs: loans. These financial lifelines provide the necessary funds to fulfil a multitude of aspirations. Whether you dream of pursuing higher education, launching your own business, or tackling unexpected expenses, loans can be your gateway to success.

Today, we will dive into the enchanting realm of unsecured loans and unravel the mysteries surrounding their limits, including the cash limit and its implications for your income tax.

What are Unsecured Personal Loans?

Unlike its secured counterpart which demands collateral, unsecured loans offer a liberating alternative. Imagine accessing funds without having to pledge any of your valuable assets! It’s a game-changer. Following are some of the most pertinent features of unsecured loans:

  • No collateral required: Unsecured personal loans are not backed by any collateral, such as property or assets. This means borrowers can access funds without risking their valuable possessions. 
  • Quick approval process: Unlike secured loans that involve extensive documentation and evaluation of collateral, unsecured personal loans typically have a faster approval process.  
  • Flexible use of funds: Unsecured personal loans provide borrowers with the freedom to use the funds for a variety of purposes, from vacations to education.  
  • Repayment options: Lenders often offer flexible repayment options for unsecured personal loans, allowing borrowers to choose a repayment term that suits their income and financial situation.  

Borrower anonymity: Unsecured personal loans often do not require disclosing the purpose of the loan. This allows borrowers to maintain their privacy and use the funds as they see fit.

What Are the Limits on Unsecured Loans in India?

Before you embark on your borrowing journey, it is essential to grasp the concept of the unsecured loan limit. This limit encompasses factors such as the unsecured loan cash limit and its intriguing connection to income tax calculations.  

Unsecured loans are subject to certain limits that restrict the total amount that borrowers can obtain. This limit is the maximum loan amount that the lender is willing to extend to the borrower without any collateral. The unsecured loan limit varies depending on the lender, the borrower’s credit profile, and the lending regulations applicable.

Moreover, there is also a limit on the amount of unsecured personal loan that is exempt from tax. You will not be charged any tax on your unsecured loan if it falls within this limit.

1.Unsecured loan cash limit: ceiling on liquidity

The unsecured loan cash limit refers to the maximum amount of cash that can be withdrawn using an unsecured loan facility. It determines the portion of the loan amount that can be utilized as cash, providing borrowers with the flexibility to use the funds as needed. Note that all unsecured loans do not offer a cash withdrawal option, which is why it is essential to ask your lender and clarify whether this facility is available and up to what limit.

2.The unsecured loan limit for income tax exemption: Example and Explanation

In India, the unsecured loan limit for income tax purposes refers to the maximum amount of loan that can be availed without attracting tax implications. Let us consider an example to understand this concept:

Mr. Sharma earns a monthly salary of ₹50,000. He decides to take an unsecured personal loan from Finnable to meet an unexpected financial emergency. Accordingly, the bank approves a loan amount of ₹1,00,000 for him. In this case, Mr. Sharma would be subjected to a loan limit. As per the income tax regulations in India, any loan amount of more than ₹30,000 is taxable, subject to certain conditions. In Mr. Sharma's case, the loan amount of ₹1 lakh exceeds the ₹30,000 threshold. Therefore, the excess loan amount of ₹80,000 (₹1,00,000 - ₹20,000) would be considered taxable income. Accordingly, the sum of ₹80,000 would be added to his taxable income for the relevant financial year and be subject to income tax as per the applicable tax slab.

Key Considerations for Borrowers

  1. Loan Repayment Capacity: Before borrowing any amount, it’s crucial to assess your repayment capacity realistically. Evaluate your income, expenses, and financial obligations to determine the amount you can comfortably repay each month. Failing to pay off your unsecured loans may negatively affect your credit score and lead to financial stress.
  2. Interest Rates and Fees: Unsecured loans often come with higher interest rates compared to secured loans. It’s essential to compare interest rates, loan terms, and any associated fees among different lenders. A thorough understanding of the loan’s cost will help you make an informed decision and select the most affordable option.
  3. Loan Purpose: Clearly define the purpose of the loan and ensure that the borrowed funds will be used wisely. Whether it’s consolidating existing debt, funding a specific project, or covering unexpected expenses, having a clear purpose will enable you to make the most of the borrowed amount.
  4. Borrowing Responsibly: While unsecured loans provide quick access to funds, it’s crucial to borrow responsibly. Avoid unnecessary debt and evaluate whether you genuinely need the loan. Consider alternative solutions, such as savings or budgeting adjustments, before committing to borrowing.

Summing Up

Finnable’s unsecured loans are a great option to access funds without the need for collateral. If you want to make an informed borrowing decision, it is very important to understand the different limits on unsecured loans. Factors like your credit history and income stability can play a significant role in determining the loan limit.

As a borrower, it is crucial for you to evaluate your repayment capacity, research and compare interest rates and fees, and borrow responsibly. Carefully calculate the tax you will pay on your personal loan. With Finnable, you can navigate the world of unsecured loans and make borrowing decisions that align with your financial goals. Remember, a well-informed borrower is a financially empowered individual.

Amit Arora


I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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