At times of unexpected financial emergencies or expenses, you may apply for debt to get by. Personal loans are one of the best forms of credit during these situations. These loans are best if you need a specific amount on a one-time basis. A personal loan is an instalment or EMI based loan that is to be repaid over a set term or tenure along with interest.
A personal loan is extremely versatile and can come in different forms. Following are different types of personal loans that are available in India:
An unsecured personal loan is not backed by any asset or collateral, and therefore it can be easier to acquire this type of personal loan. You must have a good credit score (typically 750 or above) and a regular source of sufficient monthly income (usually Rs. 25,000 per month) to get these types of unsecured loans.
As the name suggests, a secured personal loan is borrowed against collateral, such as a home, car, savings account, insurance, gold or another asset. In case you default on the loan, the lender can seize the mortgaged asset to cover all or a portion of the balance. The interest rates on various types of secured loans are usually lower than unsecured loans. You can avail of personal loans secured or unsecured depending on the availability of collateral.
A personal line of credit is a revolving form of credit, similar to a credit card. Unlike an instalment loan that involves a lump sum to be repaid in EMIs, borrowers get access to a line of credit up to a specific amount that can be borrowed whenever needed. Interest is levied only on the outstanding balance. You need an excellent credit score and good credit history to apply for a line of credit.
Your credit card can offer a cash advance, which is a short-term personal loan that you can borrow against your credit card’s available balance. Even though you are using your credit card, you will not necessarily have the same rate of interest on a credit card loan as a normal purchase. The interest may begin accruing as soon as you withdraw the money, and you will likely face a processing fee.
Pension loans are personal loans exclusively for retired personnel. The usual eligibility criteria do not apply for this loan scheme. Under a pension loan, some banks may provide 7 to 10 times the amount of pension pensioners drew the month previous to submitting their loan application. These loans come with longer tenure and shorter loan amounts.
Personal Loans can be categorized based on different interest rates types, such as follows:
Personal loans usually come with fixed rates of interest, which means the interest rate remains unchanged for the entire tenure of the loan, and so does your monthly payment or EMI. For these types of loans offered by banks, you will know exactly how much your EMI will be each month. A Personal Loan EMI Calculator can help you estimate your EMI even before you apply for the loan.
Some lenders may also offer adjustable/ variable/ floating interest rate personal loans. Under this loan, the interest rate is subject to change over time rather than having the same rate of interest forever. The interest rate for this loan typically starts off quite low, and after a certain time frame, it may increase depending on market conditions, so the EMI can go up or down.
Lenders may offer personal loans based on the requirement of the borrower. Personal loan types based on requirements can be categorized in the following variants:
A Debt Consolidation Loan is a type of personal finance that is obtained for paying off multiple existing loans and credit card debts with a single Personal Loan through single monthly instalments. It can help you reduce overall monthly costs into one affordable payment.
If you have a wedding wishlist, like a dream destination wedding, a gorgeous diamond ring, tempting cuisine, dreamy decor and designer wedding outfits, you can apply for a marriage loan or wedding loan. This loan covers all your wedding-related expenses, including catering, makeup, venue booking, photography, hiring choreographers and event managers, shopping for a perfect wedding dress and jewellery, and so on.
A travel loan, also known as a vacation loan, can be obtained to soothe your wanderlust. This loan covers all the travel-related expenses, including flight tickets booking, accommodation, local fares (taxis, ferries, etc.), travel insurance, visa fees, activities (scuba diving, snorkelling, paragliding, skydiving, etc.), meals, tour guide, and so on. You can apply for a holiday loan to go on a dream vacation with your family, friends and loved ones without having to worry about money.
If you want to give your old home a new makeover, you can apply for a home renovation loan. This loan covers the home renovation and repair expenses, such as remodelling of the kitchen, buying new furniture, interior designing of your house, paint, changing electrical wiring, getting new fixtures and fittings, and so on.
As clear from the name, a medical emergency loan can be availed of for catering to your urgent medical needs, such as paying off medical bills, urgent treatment or surgery, checkups, and so on. These loans come handy when you don’t have medical insurance or the limit of the insurance is not enough to cater to the expenses.
A higher education loan can be obtained by a borrower to pay for the higher education of their family members or themselves. This loan helps you pay off the admission fee, tuition fee, books purchase and other expenses related to education.
The impact of the COVID-19 virus and the pandemic has changed the lives of all directly or indirectly. It has impacted several people as many lost their jobs or went financially broken by paying off for the treatment of their own and/or their loved ones. To cater to this ongoing need of the Indian citizens, many lenders have launched a special personal loan for COVID. This personal loan is usually offered at concessional rates and with zero or nominal processing fee to reduce your burden during the stressful times of the pandemic. This loan helps you manage COVID-19 related medical expenses and tackle the challenges that lie ahead.
Some lenders may also offer different types of personal loans based on different categories of borrowers, such as follows:
Personal loans for salaried employees are designed especially for the financial needs of salaried individuals to meet the cost of any vacation, medical emergency, education, wedding, home renovation, and so on. For this loan, the lender requires you to have a specific minimum net monthly income depending on the city of residence and employment status.
These are personal loans for self-employed professionals (such as doctors, chartered accountants, architects, engineers, etc.) and non-professionals. These loans can be obtained for the personal as well as professional needs of self-employed applicants. The interest rates on these loans are slightly higher than that of personal loans for salaried employees due to the unavailability of regular income sources.
Most teachers at private or government schools/ colleges have fixed monthly salaries. There can be situations when they need urgent financial aid. So to help them overcome any added overheads, a Personal Loan for teachers is offered by various lenders. If you are a teacher who needs extra funds for personal needs, a personal loan for teachers is the best choice.
Some lenders may also offer special personal loans for NRIs. These loans help in funding the personal financial needs of Non-Indian Residents (NRIs). The eligibility criteria and charges for this loan can be different from other personal loan variants.
To help women meet their financial needs, many banks offer special personal loans for women. These loans can be used for funding your higher education, travel plans, wedding, or any emergency expenses. These loans are usually available at competitive rates of interest, and some lenders may also offer a special concession on interest rates.
Personal loan for government employees is tailored specifically for salaried government employees to help them cater to their personal needs. These loans are available to employees of public sector undertakings or PSUs, including central, state and local government bodies. It can be obtained for a medical emergency, a sudden travel plan, a wedding venue booking, home renovation, and so on. This loan is offered at discounted rates and longer tenure.
A student loan can be availed of by students for various education-related needs, such as getting admission to the best of universities or pursuing a professional course to hone their skills. Unlike an education loan, which is made only for education expenses, a personal loan for students can be used for a wide range of purposes, including education as well as personal. It can be used to fund your own education or that of a child/ family member. You are not even required to pledge your assets to get this loan. Before apply for the loan make sure to check which student loans are the best.
Types of loans in bank come in various forms to cater to the financial needs of every customer segment. You can apply for a personal loan online and get a loan amount up to Rs. 50 Lakhs for tenure up to 6 years, at attractive interest rates and processing charges. This loan requires minimum documentation and comes with easy eligibility criteria, making it the best financial alternative in times of need.
To know which personal loan you should apply for, you must know what are the different types of loans offered by banks.
Additional Info: Also know about Debt Consolidation loan.