How Do Personal Loans Differ from Other Types of Borrowing?

Owing to the developing mindset of people, everyone nowadays has become more focused on achieving their goals than ever. While pursuing these goals, often, people find one aspect the centre of discussion. Do you know what it is? Well, it’s the finance. Yes, the financial element stands out as one of the most essential topics when it comes to achieving any goal.

Whether it is a personal goal or a business goal, managing your funds is imperative. Let’s plough the field of financial management by learning about different types of borrowings, such as personal loan, business loans, etc. 

 

Exploring Different Types of Borrowings

When it comes to managing finances and covering unexpected expenses, borrowing money becomes a standard solution. To borrow such loans, it is advisable to connect with NBFCs as they operate dedicatedly to offer a streamlined procedure. This is usually done by providing you with tailored borrowing options, and therefore, it is necessary to understand them. Here is a brief explanation of different types of loans:

  • Personal Loans

These are unsecured loans provided to individuals to meet their expenses like weddings, travel, medical emergencies, etc. Personal loan interest rates are either fixed or variable, depending on the borrower’s credit history and income.

  • Home Loans

Home loans are used to purchase a house or property. They typically offer longer repayment terms and lower interest rates than other types of loans. The loan amount sanctioned depends on the borrower’s income, creditworthiness, and the property’s value.

  • Business Loans

Entrepreneurs and enterprises can get loans from NBFCs to establish a new firm, expand operations, buy equipment, or fulfil working capital needs. Depending on the borrower’s needs and repayment capacity, these loans might be secured or unsecured. Moreover, you can use a personal loan to initiate business activities.

  • Gold Loans

Gold loans are secured loans. It means that to get money from NBFCs, borrowers must pledge their gold jewellery or other valuables. What lowers their interest rates is the fact that the pledged gold backs them.

  • Loan Against Property (LAP)
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LAP is a secured loan where individuals can use their property as security for their loan. Afterwards, the property’s value is used to determine the loan amount.

  • Agricultural Loans

NBFCs provide loans to farmers and agriculturists for purchasing agricultural equipment, seeds, fertilisers, and meeting other farming-related expenses. These loans often have specific terms and conditions catering to the agriculture sector.

  • Credit Cards

While both credit cards and personal loans offer access to funds, they function differently. If you are new to the concept of Credit cards, you should know that they provide a revolving line of credit. It means you can borrow up to a set limit. Moreover, they have a significant interest rate, which is another significant addition to the overall borrowing amount. 

  • Payday Loans

Often considered as a last resort due to their extremely high-interest rates, payday loans provide quick but small amounts of money, usually to be repaid by the next paycheck. 

  • Home Equity Loans/HELOCs

Home Equity Lines of Credit (HELOCs) use your property as collateral. These types of loans are secured against the value of your home, allowing you to borrow larger sums. Conversely, personal loans do not require collateral, which means they pose less risk to your assets but may come with higher interest rates.

While these loans are of different types, one factor puts a few of them on the same map, and that is a collateral exemption. As a result, you can even opt for a personal loan for all various activities without any strings attached. Continue reading to learn more about how these loans are distinguished from other borrowing methods.

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How do Personal Loans Differ from Other Borrowing Types?

  • Collateral Requirement

Personal loans are unsecured, which means they don’t necessitate collateral. Unlike loans such as home loans or car loans that require assets (like property or a vehicle) as security, they function differently. In fact, they are approved based on the borrower’s creditworthiness and income.

  • Usage Flexibility

These loans offer versatility in their purpose. Borrowers can utilise the funds for a wide range of personal expenses such as weddings, travel, medical emergencies, debt consolidation, home improvements, or any other personal need.

  • Adaptability in Usage and Repayment

As borrowers, you can typically choose the loan amount within a specified limit and repay it through fixed monthly instalments over a predetermined period.

  • Interest Rates

The absence of collateral in personal loans influences the fixture of interest rates. It is finalised based on the borrower’s credit history, income, and the lending institution’s policies.

  • Loan Amount and Tenure

These loans usually have smaller amounts compared to loans secured against assets. Moreover, the repayment tenure for personal loans tends to be shorter compared to secured loans.

  • Processing Speed

A personal loan gets quick approval compared to secured loans, which often involve asset valuation and extensive documentation. This makes them a more suitable option, especially during urgent financial requirements.

Leveraging Loans for Personal Aspirations

By now, we understand that managing a financial situation requires a loan, and you must opt for a trusted financial partner only. Tata Capital is an NBFC with a track record of successfully serving borrowers as per their financial needs. With their competitive interest rates and compelling strategies to help an individual, they stand out as one of the most reputed financial partners. 

If you are looking forward to borrowing a personal loan, visit their official website today!

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