Type of Loans- Personal Loans
We often face various personal financial requirements that come unannounced. Also, sometimes we need funds to meet our life goals and dreams. Personal loans are the answer in such cases. These are unsecured loans provided based on the financial health of people to meet any kind of financial need.
They are the most versatile form of loans. Unlike home loans or education loans where the proceeds have to be used for specific purposes, personal loans can be used for anything – funding vacations, meeting medical emergencies, debt consolidation or even meeting day-to-day living expenses. However, since personal loans are unsecured loans given solely on the basis of the financial health of a person and the money can be used for any purpose, the terms of personal loans are less favourable than other kinds of loans:
- The tenure of personal loans is usually very short – from 1 year to a maximum of 7 years. Most people take them for 3-5 years.
- Personal loans are given at a fixed rate of interest. However, since they are not backed by any collateral, the interest rate of personal loans tends to be on the higher side.
- Banks consider a number of things while giving out a personal loan which includes a good credit score and stable income.
- Good credit score plays a very important role in the case of personal loans. People with good credit scores can get personal loans at a lower interest rate compared to those with a lower credit score.
- Personal loans typically are processed faster and need less documentation.