Personal loans: All you need to Know

What is a personal loan?

Personal loan/Consumer loans is a secured or unsecured loan to meet your current financial needs and granted for personal (medical), family (education, vacation), or household (extension, repairs, purchase of air conditioner, computer, refrigerator, etc.) use. Repayment made by fixed amount of installments over fixed period of time

Type of personal loan:

Based on security:

  • Secured loan: These loans are secured by the asset purchased or guarantor. 
  • Unsecured loans: Unsecured loans are provided on the basis of the borrower's credit history and the ability to repay. These unsecured loans are also called Signature loans. 

Based on Purpose:

Wedding Loan: 

  • This type of personal loan getting popular nowadays among rural and urban areas. 
  • The amount of the loan depends on various factors like applicant’s age, credit history, 
  •  repayment capacity, financial background, security contract by the applicant (if secured loan). 
  • The rate of interest determined by the market value at the time when the loan is sanctioned. 
  • The rate is generally higher during wedding season. 

Holiday loan:

  • This type of personal loan is provided for domestic or international vacations. 
  • The loan amount is dependent on the repayment capacity of the applicant and sometimes it’s depends on the holiday destination. 

Consumer durable loan:

  • This type of loans are typically provided for purchasing consumer durable products like air conditioner, refrigerator, washing machine, music system, television etc.
  • This kind of personal loans may be either secured or unsecured. 
  • The amount of loan generally Rs.50,000 to Rs.1,00,000 but lots of banks which are 
  • Provided an amount ranging from Rs.5,000- Rs.2,00,000. 
  • Maximum time period for this type loans is 5 years. 
  • Personal computer loan has surged in popularity in recent years is a type of Consumer durable loan. 

Festival loan:

  • This type of loans provided to fulfill an individual’s and family desire during the festival time. 
  • Major Banks in India provided this type of loans during festival season at lower interest rate. 
  • The rate of interest depends on the Banks. 
  • The amount of loan ranging from Rs.5,000 to Rs.50,000. 
  • Maximum time period for this type loans is 12 months. This is a short term loan and very useful for those who want to borrow a small amount. 

Gold loan

  • This is the loan given against gold. 
  • Most of the banks and financial institute offer this loan at attractive rates. 
  • The loan amount depending on the market price of gold and the amount of gold. This is a short term secured loan. 
  • Anyone can avail this loan to meet their requirements against their own gold. 

Pension loan: 

  • This type of loan is for old aged people who have retired from their job. 
  • The maximum amount of loan is 7-10 times more than the last pension received by the applicant. 

Personal loans are unsecured and involve a high risk, so the interest rates are more as compared to other loans. Generally the rate of interest varying from 12 to 24%. Borrowers have to pay the interest processing fee at the time of processing of loan application. If any individual decide to pre-close the loan account, A pre-payment fee is payable in that case. The range of the processing fee and pre-payment fee are in 2-3%. An existing customer with the bank can get the benefits of preferred interest rates, priority processing, and simpler documentation. Generally, personal loans are approved within 3days.

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