Different types of Personal Loans

Financial institutions such as banks and NBFCs (non-banking financial companies) offer a variety of loans to cater to different needs. Loans are typically categorised based on their intended purpose. For instance, car loans are specifically designed for purchasing cars, home loans are for buying houses, and education loans are meant to finance educational expenses. In addition to these specific-purpose loans, personal loans can be utilised for various personal expenses like weddings, vacations, shopping, and more.

Banks and NBFCs typically provide loans against collateral. For instance, in a home loan, the collateral is the house itself, while a car loan uses the car as collateral. Similarly, an education loan may consider your degree as collateral. However, personal loans differ in the sense, that they are unsecured loans, meaning they are granted without requiring any collateral, similar to credit cards.

Due to the absence of collateral, personal loans are issued solely based on past credit history, trust and faith. As a result, the lender charges a higher personal loan interest rate than other loan types. The specific interest rate on personal loans varies among lenders. Generally, it ranges from 8% p.a. to 30% p.a., depending on factors such as your creditworthiness, loan tenure, and the purpose of the loan. This post will take you through the different types of personal loans you can avail in India.

Common uses of Personal Loans in India

Personal loans can be of different types. Each comes with different requirements and features such as:

• Wedding

  In India, weddings hold great significance and often entail substantial expenses. People strive to create memorable experiences on their wedding day and spare no effort in realising their dreams. To assist individuals in making their special day truly unforgettable, banks offer wedding loans. The prospective bride and groom or any family member involved in organising the wedding can obtain these loans.

• Travel

  These loans are specifically tailored for individuals passionate about travelling and taking vacations. Referred to as travel, vacation, or holiday loans, they provide the opportunity to explore the world while deferring the payment of expenses until later. In addition to the convenience of financing travel expenses, this type of personal loan often includes the added benefit of travel insurance, offering comprehensive protection and peace of mind.

• Top-Up

  The lender who has already provided you with a personal loan, also offers a top-up loan facility. With a top-up loan, you can access additional funds on your existing loan and repay them within the same tenure. However, this type of loan is typically extended by the lender only if you have maintained a regular repayment schedule.

• Debt Consolidation

  A Personal Loan for Debt Consolidation provides a convenient solution for repaying loans on which defaults have happened. It combines various outstanding debts such as medical expenses, travel costs, home construction expenses, credit card debts, and other unpaid loans into a single consolidated amount set for repayment. This personal loan eliminates the need to manage multiple EMIs, reducing the risk of missing payments that could negatively impact your CIBIL score. Debt consolidation personal loans function similarly to other types of personal loans.

• Medical purpose

  One of the personal loan options available is the medical loan, which serves as a financial support system for unexpected medical emergencies such as hospitalisation, surgeries, expensive treatments, and medication. Like other types of personal loans, a medical loan does not necessitate collateral and, as a result, typically carries higher personal loan interest rates. Repayment is typically structured through equated monthly instalments (EMIs) linked to your bank account. This loan can be a lifeline during challenging times when you require immediate financial assistance for medical needs.

• Home Renovation

  A home improvement personal loan is specifically intended for financing renovations and repairs to your residence. This loan can be utilised for a wide range of interior and exterior home improvement projects, including painting, tiling, flooring, waterproofing, plumbing, sanitation services, and other property enhancements. It provides the necessary funds to undertake various home improvement initiatives and enhance your home's overall aesthetics and functionality.

Conclusion

The various types of personal loans discussed above offer a quick and convenient solution to address short-term financial requirements, such as unforeseen emergencies and unexpected expenses. These loans provide immediate access to funds, making them an excellent option for individuals who may have been turned down for credit elsewhere. Furthermore, personal loans can assist in debt management and potentially impact your credit score positively. By utilising these loans responsibly, you can effectively address your financial needs while improving your overall creditworthiness.