Planning to borrow? THESE features make personal loans quite different from others

Are you facing a financial crisis and contemplating borrowing money from a bank as of now? Among several options, loan applicants can apply for what is known as a personal loan. For the unversed, personal loan is a form of borrowing which enables applicants to use money for a range of activities which could vary from organising a wedding to going on a vacation.

In case you are toying with the idea of taking out a personal loan, we list out key characteristics of personal loan:

I. Unsecured loan: A personal loan is unsecured which means the applicants do not need to give any collateral to be able to raise it. For instance, a car loan. A home loan or gold loan is given against a secured asset whereas no such asset needs to be given by the borrower at the time of raising a personal loan.

II. High interest rate: By virtue of being an unsecured loan, these loans charge a higher rate of interest. While you can raise a home loan for anywhere between 9-10 percent – personal loan is typically given for 11-18 percent per annum.

III. Multiple use: While most other loans are given for a specific purpose such as to buy an asset (be it car or home), personal loan is given for a range of activities. And one does not need to spend on only one activity. You could use this loan for anything that pleases you.

IV. Ease of raising funds: Raising a personal loan is relatively easier than raising any other form of loan. This is because personal loans are often given instantly unlike other loans wherein a formal process has to be followed which includes sending out an application, submitting documents and giving proofs.

Key reasons for which raising personal loans is considered acceptable

A. Wedding: It is not uncommon for people to take out personal loans to organise a wedding. This makes sense when your total budget exceeds your savings. Therefore, one can rely on a personal loan to meet the shortfall.

B. Emergency: An emergency could happen anytime with anyone. It could be personal or medical. To meet expenses on account out of emergency, one could raise a personal loan.

C. Higher education: Usually, one could take out an education loan to meet this expense, but there could be a shortfall between the actual requirement and the maximum limit of loan that one is entitled to. In such a case also, one could rely on a personal loan.

D. Luxury holiday: Although it is not recommended to raise a loan to spend on a holiday, still one could do this only if the trip is too important to ignore, and the savings have fallen short.

(Note: Raising a loan comes with its own risks. So, due caution is advised)