How lovely it would be if money were in abundance for all of us. But the matter of fact is that being abundance is very far, most of the times we have to face a lack of money. Whenever we feel that a lack of fund is bringing obstacles to our lives, we can borrow it from our friends, families or the lending institutions which we are to return within a fixed period of time. Borrowing money which is expected to be paid back with interest is called a loan in technical terms. A person can avail a loan of many kinds such as a home loan, car loan or a business loan. As the names suggest, these loans are taken for a specific use such as buying a home or car or using in business. There is another kind of loan which is a multipurpose loan and can be availed for any kind of use of the borrower. Such loans are known as Personal Loans. Here we have bought an extensive description on a personal loan and its kinds.
What is a Personal Loan?
A personal loan is an installment loan which can be used for any personal use of the borrower. Such loans are repaid through EMIs. The tenure of a personal loan is generally from 12 months to 60 months. Personal loans are best to fight emergencies, as they are fast in disbursal. The processing of a personal loan is much faster than other loans because of a the minimal documentation.
The Key Features and Benefits of a Personal Loan
Personal loans are the most availed credit product of present credit market. This type of loan is popular all around the globe because of the benefits of it. Here are the features of a personal loan
Minimal Documentation– A personal loan needs very minimum documents to be submitted. One can avail a personal loan only with the basic documents such as identity proof, address proof, and income proof.
Quick Processing– Personal loans are best known for being fast in disbursal. One can fight any emergency with a personal loan as most of the lenders disburse a personal loan within a day. Some of the lenders even claim to disburse a loan within a few hours which will be really helpful when you are in need of urgent fund.
Can Avail Online– Personal loans nowadays can be availed online too. Online loans are very convenient for the borrower as it saves much time and effort of both borrower and the lender. Online personal loans make a loan seeker apply personal loan online which is much faster, convenient and secured too.
Multipurpose– The best and the unique feature of a personal loan is being multipurpose. A personal loan can be used for any purpose of the borrower. A lender will never ask you the purpose of the loan. So whatever the use may be, a personal loan is fit for all.
Types Of Personal Loans
The prime feature of a personal loan is being multipurpose. There are different types of personal loans which a person can avail in India. A personal loan can be divided mainly into two parts- Secured Loan & Unsecured Loan. Here is a brief introduction to both kinds of personal loans.
Secured Personal Loan
A secured personal loan is a multipurpose loan which is provided to the borrower against a security. A borrower puts up collateral in the form of cash or property to secure the loan amount. In the event of not paying the loan, the lender has the right to take the possession of that collateral property and sell it in order to cover some or all of the original loan amount.
Features of secured personal loans
- To avail, a secured personal loan own has to produce the title of ownership of the asset (s), which will be used as collateral.
- One can get a lower interest rate as compared to unsecured personal loans.
- The repayment process of a secured loan is more flexible than a regular loan.
- One can choose the kind of interest rate i.e. fixed interest rate or floating interest rate.
- One can avail a secured loan with a low credit score.
- Faster loan approval is the next feature of a secured personal loan.
- No guarantor is required for a secured loan.
A secured loan is a very good way to improve a credit score. Taking a secured loan and repaying the same makes the credit score of the borrower go high.
Eligibility criteria for a secured loan
Just like any other loan, one has to fulfill some of the criteria determined by the lender to avail a secured loan.
- One must have assets which he can use for the security of the loan. The market value of the asset must be more than the value of the loan required.
- The minimum age of availing a loan is 18 years.
- The applicant must a citizen of India.
- The income of the loan seeker is also checked as the income only determines the repayment capacity of the borrower.
Types of secured loans
As mentioned above, all personal loans are the multipurpose loan. On the basis of the collateral, there are different types of secured loans. Here are the top 4 types of secured loans.
Loan Against Property– A loan against property is the highest availed secured loan. One can collateralize their residential, rental or commercial property against the loan. While availing this type of loan, one has to submit the title deed of the property to the lender. But it doesn’t mean that they cannot use the property. The property can still be used by the borrower. The highest loan amount will be 60% to 70% of the property value.
Home Equity Line Of Credit– A home equity loan is a secured loan which is taken by keeping the equity or the share of the borrower’s home as collateral even when the home loan repayment is still going on. Every EMI some amount of principal is paid. So the principal amount which is already paid and the down payment of the home together forms the equity or the share of the borrower on that asset.
Loan Against Your Lien Free Car– If your car is a lien-free or When the loan on the car is paid off, you can use the car as a security of the loan. The highest loan amount will be decided by the lender by evaluating the value of the car. Just like a Loan against property, one can use the car normally. Only the ownership documents will be with the lender. Once you will pay off the loan, the lender will hand you over the documents.
Gold Loan– A gold loan is the cheapest secured loan. Availing a gold loan is even very easy. But unlike the above-mentioned loans, one has to keep your gold whether an ornament or a bar with the lender. You can have your gold back only when you will repay the loan in full.
Unsecured Personal Loan
Unsecured personal loans are the credit which is multipurpose as well as provided without any collateral. Such type of loan is granted to the applicant only on the basis of the repayment capacity and the credit history. One can take an unsecured personal loan of a small amount like INR 50,000 to the maximum of INR 15 Lakhs. The loan amount depends on the repayment capacity of the applicant. An unsecured loan is of two types i.e.- Conventional Personal loan & Online personal loan.
Conventional Personal Loan
A conventional personal loan is where the loan process goes manually. It means you are to go the lender, fill up the loan application, submit the documents, sign in various documents and wait a few days to get a response from the bank. This is the traditional way to apply for a personal loan.
Online Personal Loan
An online loan is the upgraded version of a conventional personal loan. Loans online are considered better as they are faster and more convenient for both the lender and the borrower. Each and every process of the loan is done online which saves much time and effort of both parties. Such loans are generally disbursed within a day which makes it better known as same day loans. Such urgent personal loans are best to fight emergencies when money matters a lot.
There are various types of online loans which a person can avail in India.
Types of unsecured loans
Medical Loan– One can avail a personal loan for medical procedures like a surgery, operation, therapy, procedure, etc. Such loans can be availed by the close relatives of the person who needs a medical assistance. ICICI Bank, HDFC Bank and AXIS Bank are some of the renowned banks that grant a medical personal loan.
Festival Loan– Festival loans are taken for celebrating a festival. Such loans are easy to avail and can be even small amounts like Rs.50,000.
Travel Loan– Travel loans are the next type of instant loans which is taken for a travel. With the aid of an instant loan, one can have a travel whenever he/she wants. Such loans are easy to repay as one can opt for a tenure of 2 years which makes the EMI smaller.
Home Renovation Loan– A personal loan can be taken to renovate your home. The good news about a home renovation personal loan is that such loans are tax-free. One can avail a tax exemption if a personal loan is used in purchasing or renovating a home.
Line Of Credit– A line of credit is a way of availing a personal loan of very small amount i.e. Rs 5000. This is a kind of credit card where you will get a maximum amount which you can avail. One can use that particular amount in many parts whenever required.
Business Start-Up Loan– A personal loan is the best way to avail fund for a start-up business as availing a business loan at the initial stage of business is near to impossible. The lenders ask for a minimum of two years turn over the report in order to grant a business loan. One can avail a personal loan and start a business.
Corporate Loan– A corporate loan is taken by the persons who are in business for a quite long time and want to expand their business. Such loan amount can be used for purchasing inventory, working capital or any other kind of use in business.
Debt Consolidation Loan– A debt consolidation is a kind of loan which taken to pay off other loans. It happens many a time that a person has a number of small loans and credit cards which he/she is to maintain every month. A debt consolidation personal loan is a loan which is equal to the total outstanding amount. By availing such loans, a person closes multiple credit accounts and run a single account which is much better to handle.
A personal loan in one day can be availed from different such lenders such as a bank or an NBFC. But every lender has some eligibility criteria which one has to satisfy in order to avail a loan. Here are the general eligibility criteria for a speedy personal loan online approval.
Eligibility Criteria for an Instant Personal Loan
Age– Age is the first checklist of the lender. One can avail an insta loan only if the applicant is between 21 to 60 years old.
Income- The income of the applicant is also checked as this is the way how a lender determines the highest lending amount and the repayment capacity. The minimum income should be ₹25,000 for salaried persons to avail a personal loan online.
Employment– The duration of the employment is the next criterion of personal loan eligibility. A salaried person must be employed for the minimum of 2 years and a self-employed person must have a record of earning at least for 5 years.
Credit Score– Generally a credit score of 750 is considered as eligible for a personal loan. But if you apply the same from the NBFCs like Finance Budhha, a person who is new to credit can also avail a personal loan. When you are new to credit, your credit score will be 0(zero). In such scenarios, NBFCs work better than banks in terms of availing a loan.
The List of Supporting Documents Required for a Personal Loan
- 2 passport size photographs.
- Identity proof: (passport, voters ID, driving license or pan card).
- Address proof: (lease agreement, less than 3 months old utility bill or passport).
- Last 3 months’ Bank statements.
- Latest 3 months’ salary slip
Documents to prove the business existence in case of self-employed applicants.
The Bottom Line
A personal loan is considered as a boon for the ones who are in an urgent need of fund. Such loans are easy to avail and can be fit for any kind of use. If you avail a personal loan for a meaningful reason and repay it on time, it will make you come over the financial crises while enhancing your credit score.
HAPPY BORROWING !!!