Personal Loans: What are the different types of loans you can choose? | Mint

Over a period of time, the use of personal loans has extended to cover almost all possible needs of any individual, for example, loans for home renovation, medical expenses, etc. These loans are very useful but still remain flexible and easy to use.. Yet, as much as they may all be termed personal loans, they may not be the same. In India, there are several sorts of personal loans created to meet distinct financial needs and circumstances.

What are personal loans?

A personal loan is typically an unsecured type of financing that can easily be accessed for many purposes. Personal loans usually do not ask for any asset to be pledged as security as compared to secure loans where real estate or vehicles must be pledged. This therefore makes them attractive to borrowers who do not have much to offer in terms of security. However, personal loans come with high-interest rates as they are unsecured.

The approval of personal loans depends on income, credit rating and employment history. These loans are also very flexible for the borrowers since they can use the funds borrowed for anything from debt restructuring to unexpected medical bills.

Features of personal loans

• No security: Typically, personal loans are unsecured, which implies no possession has to be pledged as security. This enables a wider range of borrowers to access them.
• Fixed interest rates: The majority of personal loans come with fixed interest rates hence the monthly charges remain constant. This aids debtors in budgeting their finances properly.
• Flexibility: There are numerous reasons as to why a personal loan may be granted such as for a wedding, improvement of houses, medical expenses, travel and for consolidation of debts. Usually, the lenders do not put any limits on the usage of the funds.
• Repayment plans: The borrowers accept a schedule for the repayment of the loan, generally ranging from 1 to 7 years. This helps to lower the amount of monthly payments since the cost of expensive items is spread over a period of time.
• Faster processing: Unlike other types of loans, personal loans are usually processed and paid out quicker. Given the fact that most lenders will accept applications over the internet and offer quick approval with the funds available within a few days.

Types of personal loans

1. Wedding loans: People say that marrying in India is an expensive affair, and this is where wedding loans come in handy, covering costs that include booking venues, catering, and decorating, as well as planning the honeymoon. They often have adjustable repayment terms, and their interest rates are reasonable.

2. Home renovation loans: Such loans are ideal for financing even extensive home improvement tasks such as remodelling the kitchen, enhancing the bathroom, or even extending the house. These often tend to have much lower rates and extended durations of repayment collateral compared to the standard personal loans.

3. Travel loans: Travel loans will include the expenses incurred during domestic and international tours such as air tickets, accommodation and other travel-related expenditures. They impose very few requirements in terms of documents and are given out quite nicely.

4. Medical loans: Medical loans settle bills that are not anticipated, such as those related to hospital admission, operations and treatments. They also serve as cash injections during crises.

5. Debt consolidation loans: A debt consolidation loan is a financial instrument used for amalgamating debts accrued from various lenders into a single loan usually attracting less interest. This makes repayment easier and can help decrease the interest costs involved in the long run.

6. Education loans: It pays for tuition fees, as well as room and board, and any additional costs incurred during the course of pursuing a higher education. Such loans usually come with extended repayment periods with some of them being subsidised by the government.

7. Small personal loans: They are short-term and small in size, hence, suitable for the provision of aid on urgent financial needs. They are usually not secured and have shorter terms for repayment.

8. Car loans: Car loans might not be considered a personal loan, as they are secured in theory. These are loans meant to help buy a new or second hand vehicle but are secured against the car purchased.

Conclusion

Personal loans are a beneficial source of funding for a variety of uses, such as planning an extravagant wedding, renovation of a residence, or coping with a sudden crisis. However, taking personal loans should be approached with extreme caution. Evaluate your ability to repay the loan first, shop for the most favourable borrowing conditions, and study the loan characteristics thoroughly.

A personal loan can assist, should it be used effectively. To assist you in seeing the light of reason with respect to such decisions, consult a competent economic specialist.