Life can often be unpredictable, resulting in unforeseen financial difficulties. Whether it is an unexpected medical emergency, a sudden loss of income, or a big home renovation project, personal loans can come in handy to help us get through tough times.
From small loans to cover minor expenses to larger loans for major purchases, lenders offer a wide range of personal loans. However, it is crucial to note that personal loans can vary significantly in terms of their features and conditions. Hence, it is essential to have a comprehensive understanding of the various types of personal loans available to determine the best option for your financial situation.
In this blog, we will delve into some of the most common types of personal loans to help you make an informed financial decision.
Secured Personal Loans
To qualify for a secured personal loan, the borrower must put up an asset or security as collateral. Home loans and auto loans are two examples of secured loans, where the borrower is required to pledge the property or vehicle to be purchased as collateral. This type of loan is considered a more secure option for lenders, as they have some form of collateral to fall back on if the borrower defaults on the loan. Secured loans, therefore, have lower interest rates and offer larger loan amounts than unsecured loans.
Unsecured Personal Loans
Unsecured personal loans can be an excellent option for those who need access to funds without risking their assets as collateral. These loan products are best suited for borrowers with a good or excellent credit history, as they carry a higher level of risk for the lender. Furthermore, they don’t have any collateral attached and are riskier for the bank. As a result, unsecured personal loan interest rates are generally higher than those for secured personal loans.
When you take out a fixed-rate loan, the interest rate is set for the duration of the payback period. This is especially helpful when budgeting expenses because you know exactly how much you must set aside monthly for your loan payment. Most personal loans fall into the fixed-rate category, making them a popular choice for borrowers.
With a variable-rate loan, the interest rate may change over time based on the benchmark rate set by banks. That means your monthly payment may increase or decrease depending on the market conditions. While this can make it harder to budget for your payments, the upside is that variable-rate loans can sometimes have lower interest rates than fixed-rate loans. These loans are usually best for short-term borrowing.
Debt Consolidation Loans
You might want to consider a debt consolidation loan if you struggle to keep up with multiple high-interest debts like credit card debt. This type of loan allows you to combine all your existing debts into one manageable loan with a lower interest rate. Doing this lets you save on interest and simplify your finances by only worrying about one monthly payment.
Co-signed and Joint Loans
If you are having trouble getting approved for a personal loan, consider applying with a co-signer or co-borrower who has a good credit score. This might increase your chances of approval and potentially get you a better interest rate and loan terms. A co-signer agrees to pay back the loan if you cannot but do not get access to the funds. Co-borrower shares responsibility for the debt and has access to the funds.
Personal Line of Credit (PLOC)
A personal line of credit functions as a financial safety net that gives you access to a certain amount of cash whenever needed. It is like a credit card but with a predefined borrowing limit that you can only use during a specific period, called the draw period. You just have to pay interest on the amount you borrow, regardless of how much or how little you borrow.
Personal loans can be helpful when you need to borrow money for various reasons. But bear in mind that borrowing money carries a great deal of responsibility. You should only take out loans you need and work to repay them as quickly as possible. To help you better arrange your finances, try using a personal loan EMI calculator to get an estimate of your monthly payments.
So, be smart with your money and borrow wisely! Looking to apply for an instant personal loan. Apply with IndusInd Bank today with low rates of interest.!