If there is one thing, none of us can ever get enough of; it is money! However, it is this very thing that we often lack, especially when it comes to big-ticket expenses such as weddings, holidays, festivals, home renovations, and medical emergencies. It is for this reason that we often have to look for external sources to arrange for money to meet such financial obligations and others. While our first instinct is to ask our friends or family members, there are times when the amount required is comparatively large, and we have to look to banks or non-banking financial companies (NBFCs) to offer us assistance in this regard. A vast majority of these institutions provide a credit, known as a Personal Loan.
Principally, a Personal Loan can be used to fulfil one or more financial needs. The amount offered under a Personal Loan ranges from Rs. 50,000 to Rs. 50 Lakhs, depending on the type of the Personal Loan, the repayment capacity as well as the credit history of the borrower.
The amount borrowed under this loan ought to be repaid in the forms of equated monthly instalments (EMI), which comprise of the principal amount as well as the interest.
More often than not, the interest rate on this loan varies from 11% to 22%, although it may be higher in some cases depending on the policy of the chosen lender as well as the repayment history of the borrower.
The tenure of such a loan lasts from 1 to 5 years. What makes Personal Loans the choicest alternative for many is their quick disbursal and the freedom of end use of the loan amount. Besides, most lenders offer this loan against minimal documentation, thus making the process truly simple and efficient.
Personal Loans can be primarily categorised into two types – Secured Personal Loans and Unsecured Personal Loans. Let us discuss each of these types in greater detail:
A secured Personal Loan denotes a loan which can be obtained by pledging security to the lender. This security can be in the form of an asset such as cash, property, shares, bonds or equity among others. In case of a default in the repayment of the loan amount, the lender reserves the right to seize the pledged asset, and sell it off to recoup the losses.
A secured Personal Loan is the ideal pick for anyone with a poor credit score, especially when they are in urgent need of funds. This type of loan also serves the purpose of improving the credit score, if repaid in the stipulated manner.
Some of the salient features of a secured Personal Loan are:
The borrower needs to furnish proof of ownership of the asset that they are willing to pledge for the Personal Loan.
Have a valuable asset which can be put up as collateral. Here, it is crucial for the asset’s market value to be higher than the required loan amount.
As the name indicates, an unsecured Personal Loan can be obtained without pledging any asset against the loan amount. This type of loan is offered, when the borrowers have a good credit history with a score of 700 or above. In most cases, the maximum loan amount depends on the gross annual income of the borrower. The higher the income, the higher can the loan amount be. When it comes to an unsecured Personal Loan, the borrower can take their pick from a wide variety of loans, including but not limited to:
In order for the borrower to be eligible for an unsecured Personal Loan, the borrower must:
Have a steady source of income, preferably Rs. 25,000 or more per month for a salaried individual. In the case of self-employed business owners or professionals, a minimum income (turnover) of Rs. 2 Lakhs per annum is considered ideal.
Regardless of the type of Personal Loan one avails, the following documents are mandatory to prove one’s eligibility for this much sought-after credit:
Identity Proof, in the form of government-issued identification such as Aadhaar Card, Driving Licence, Birth Certificate, Passport, Ration Card, and so on.
Verification of Employment, in the form of an Employment Letter from the employer (for salaried individuals), Registration of Business (for business owners), or Professional Certificate and Registration Documentation (for self-employed professional).
Proof of Income, in the form of – A recent salary slip or current salary certificate, Banks statement for the last three months and the latest copy of Form 16 – for salaried individuals. For business owners and self-employed professionals – Income Tax Returns Statement for the previous two years. This statement should be accompanied by the Computation of Income, Profit and Loss Account, Balance Sheet as well as an Audit Report as well as Bank Statement for both current as well as savings accounts for the last one year, act as proof of income.
As mentioned above, in case of secured loans, the borrower must also submit an additional document, namely:
A Personal Loan is one of the most readily available and efficient means to meet a financial obligation that you can come across.
A secured Personal Loan can prove to be extremely helpful if you are struggling with a poor credit score, or if you don’t have a score at all. Besides, even if you don’t need additional cash, this type of loan can help you boost your credit score if repaid promptly.
An unsecured Personal Loan can help you in difficult times, by helping you avail additional funds without offering any collateral. Though slightly higher in cost, this loan can prove to be in your best interest when you are in urgent need of some extra cash.
So, what are you waiting for? Now that you know all about secured and unsecured Personal Loans go ahead and pick the one that best suits your needs. And of course, remember to repay your EMIs on time. After all, you don’t want to lose out on those valuable credit ratings!
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.