A loan that one borrows to simply meet certain personal needs is a personal loan. The term period of a personal loan usually stretches between 1-5 years and is repaid through EMI’s or Monthly Equated Installments. The minimal documentation required to avail a personal loan makes it one of the fastest loans when compared to other loan products.
Now, let’s take a quick look at the secured and unsecured type of personal loan.
Secured Personal loan
It is a loan that a borrower can avail against a collateral and can use the loan amount for multiple purposes. The collateral used to secure the loan can either be in the form of property or cash. When a borrower fails to repay the loan amount, the lender can sell off the collateral to recover a portion or whole of the principal loan amount.
The Features of secured personal loans
- The borrower has to show the ownership title of the asset which they wish to use as collateral.
- The interest rate levied on secured personal loans is lower than the unsecured personal loans.
- Even a borrower who has a low credit score can avail a secured personal loan.
- One can avail a speedy approval on secured personal loans.
- One doesn’t need to have a guarantor to avail a secured loan.
- The repayment option offered to the borrower of a secured loan is deemed to be more flexible than that of a regular loan.
- The borrower can select the type of interest rate; they can either pick a floating or a fixed interest rate.
The eligibility criteria for availing a secured loan
- The market value of the collateral must be greater than the required loan value.
- 18years is the minimum age to apply for a secured personal loan.
- Only the citizens of India can apply for a secured loan
- The borrower’s income also serves as an important determining factor
According to the type of collateral, there are four types of secured personal loans, namely, Loan Against Property, Home Equity Line Of Credit, Loan Against Your Lien Free Car and Gold Loan.
Unsecured Personal loan
This type of loan is used for various purposes and is given to the borrowers without anycollateral. The loan amount and the eligibility of applicants largely depend on their credit history and the repayment capacity.
The Conventional Personal loan and Online Personal loan are the two basic types of unsecured personal loans.
The Medical Loan, Travel Loan, Home Renovation Loan, Corporate Loan, Business Start-Up Loan, Line Of Credit Loan, Festival Loan, Debt Consolidation Loan are various kinds of unsecured personal loans.
Documents required to avail a Personal loan
- Passport size photographs
- Identity proof and address proof
- Bank statements and salary statements up to last 3 months
- For self-employed applicants, proof of existence and ownership of their business
A personal loan is not only a means to tide over financial glitches but is also a way to improve one’s credit score through timely loan repayment.