A loan can be defined as an arrangement in which you take a set amount of money from a bank or a financial entity. You also promise to return it back within a specific time period at a fixed rate of interest. In most of the cases, you return back the loan in fixed installments and these installments are made with a fixed amount of money.
There are varied types of loans namely – Personal Loan, Home Loan, Auto Loan, Education Loan, and Business Loan, etc. So, let us discuss Personal Loans and everything that revolves around this loan.
What is a Personal Loan?
When you take a personal loan, you can actually fund your personal expenses such as spending on a wedding or going on a vacation. Unlike other loans, there is no constraint as for how the money is being used; you have complete freedom to spend the money wherever you want.
What are the types of Personal Loans?
There are mainly two types of personal loans, let us discuss them in detail –
- Secured Loan.
- Unsecured Loan.
Secured Loans –
This is a type of a personal loan in which you require a guarantee against the amount you want to borrow. The guarantee can be in the form of a movable/fixed asset or your property. If you default on your secured loan, there is high risk of your asset being acquired by the bank or the lender. Examples of the secured loans:
• Car Loan
• Home Loan
• Car Overdraft
• Loan Against Property
• Secured Business Loan
Unsecured Loans –
This is a type of personal loan in which there is no requirement of any security against the borrowed money. But seeing a higher risk element involved in repaying the amount, the bank or your lender may charge a high rate of interest. In case you are not able to repay the loan amount, the bank may go for a legal action to make up for the loss incurred. Examples of the unsecured loans:
• Personal Loans
• Unsecured Business Loan
• Credit Card loans
• Bank Overdraft
So, it can be concluded here that a personal loan is the best solution to meet all your personal requirements. Consider the above-discussed information and make a smart choice for a personal loan.
What are the benefits of a Personal Loan?
Let us talk about the key features of a personal loan –
- You will not be checked as for how you have spent your loan amount. This type of loan offers more flexibility as compared to other loans such as a home loan or vehicle loan where the loan should only be used to purchase a home or a car.
- It is an unsecured loan that means you don’t have to provide any collateral or security to the bank or the lender. Your credit history also plays a pivotal role in getting an approval for a personal loan. If you have not defaulted on your previous loans and have paid all your bills on time, the bank will consider you as a low-risk borrower.
- When you take a personal loan, there is a set repayment time i.e. 1 to 5 years.
- One of the key features of a personal loan is that it involves less paperwork. In addition, the loan gets approved after 48 hours of the submitting of the application.
- The whole process of having a personal loan is fast and hassle free.
What should you know before applying for a personal loan in india?
Making a smart choice from the best personal loan offers is imperative, but having said there are various other elements that should not be overlooked. Following are some of the important things you should know before you apply for a personal loan –
- Have a set budget and make sure you stick to it.
- Make sure if you are taking a personal loan, it proves beneficial to you instead of just being a temporary fix.
- It is important you have cross-checked your CIBIL score or credit report.
- Avoid taking a personal loan if you don’t really need it.
- You should be familiar with your annual percentage rate (APR). This means how much interest the loan would cost you per year.
- You should also consider various other available personal loans options such as terms and conditions, interest rates, and pre-payment charges.
- You should look for zero processing fees; if it is not available then you can choose to borrow at a lower cost. At times, additional costs tend to add up and it makes a huge difference even if you are offered lower interest rates.
- Comparing personal loans will help you in having the best offer for yourself.
- Don’t overlook the delivery charges like early payment charges.
- Make sure you have considered the risks involved in a situation when you are not able to make the loan repayment.
- Choosing a right comparison tool will help you to make a right choice for the right loan.
- Since all the banks offer tailored loans, it is important you have asked for tailored quotes for personal loans from at least three banks.
- Don’t get drawn for the lower rates. Cross-check with the bank whether they are offering it on flat interest rate basis or reducing balance basis.
- You should know about personal loan guarantor terms and conditions, make sure you have read the documents carefully and thoroughly prior to signing the documents.
How to apply for a personal loan in india?
Once you are aware of the above-discussed things, it becomes easier to apply for a personal loan. Let us discuss the process of applying for a personal loan –
- Try and get maximum information related to personal loan from varied banks and financial entities & websites such as economictimes. You have to ensure you have all the information related to disbursal time, monthly EMI calculation, processing fees, prepayment charges, interest rates, etc. Don’t forget to ask if any other fees are involved.
- You should compare the loan offers from different banks beforehand and then make a choice that suits your requirements.
- Make sure you have congregated all the documents such as – a photo ID, residence proof, a copy of Pan Card, credit card, license, and passport. In the case of credit card, make sure it is current and you have to submit the statements of the last two months. If it is a large amount, some banks may need the guarantor’s signature.
- Most of the banks perform a credit check before offering you the loan and these banks take the help of CIBIL score. The CIBIL score ranges from 100 to 999, so if you have a higher score, you have more chances of getting a personal loan.
- Most of the banks will even send one of their representatives to collect all your documents in order to complete the whole process.
- The standard term for a personal loan is 1 to 5 years. Before you go ahead and take the loan, make sure you have asked your bank what will happen if you are unable to pay back the loan on time or you have missed one of your personal loan EMI payments.