A Personal Loan is a debt taken from a financial institution, which must be repaid within a number of years, and at a particular rate of interest rate. The amount you receive from such a loan can be used as per your discretion, be it for home renovation, funding a vacation, or purchasing a vehicle. Keeping that in mind, the loan is only sanctioned after the verification of your income and personal documents.

Although the rate of interest is quite high, many apply for Personal Loan because it allows for a high amount to be dispensed within a short period. Add to that an uncomplicated application process and flexible repayment procedure, and you get a convenient way of getting money when you really need it.

Here we carefully dissect Personal Loans so that you’re clear about all the technicalities involved before you avail of one.

What are the types of Personal Loans?

In broad terms, a Personal Loan is money borrowed from a financial institution for a fixed rate of interest. However, not all Personal Loans are alike. Here are 5 types of Personal Loans that exist in the market today:

Secured Personal Loan

A Secured Personal Loan is offered by a financial institution against collateral. The money comes in exchange for any of your assets, be it a car, house, fixed deposits, or jewellery. This stipulation exists to safeguard the interest of the financial institution. If you fail to pay the loan amount on time, your lender can auction or sell your assets to recover the loan amount.

Although you have to risk your assets, lower rates of interest are available to applicants of secured home loans. In addition, the applicable fees and charges are much lower. You also benefit from convenient application process and quick sanctions, which are direct results of the collateral provided.

Unsecured Personal Loan

As the name suggests, an Unsecured Personal Loan is a debt that doesn’t require the declaration of any assets for approval. Taking such a loan is feasible only if you do not possess any assets. Lenders require your financial records in order to gauge your repayment capability. These include

your credit history and pay slips. Although your income and repayment ability will be under scrutiny, you can increase the chances of securing the loan with guarantors and co-applicants.

You might find this option feasible, but remember that you’ll be paying a high rate of interest, and will be liable to face penalties if you ever default on timely payments and debt clearance.

Line of credit

A line of credit can be understood as a Personal Loan that helps you out in times of emergencies. With this feature, you can draw extra money on your account. The maximum limit is set by the bank and the interest is charged only on the money you utilise beyond what you have in your account.

You’re set to battle financial crunches with such loans, but incurring high interest rates on the money you spend is one of the major drawbacks if you sign up.

Debt consolidation

Having multiple loans is bad enough, but what’s worse is paying EMIs for each of them, every month. You have to constantly juggle repayments and ensure you don’t miss out on a single instalment. Enter debt consolidation. It’s a feature offered by financial institutions to combine all your loans into a single Personal Loan. You save yourself the headache of paying several loans over a month, and also benefit through competitive rates of interest. But there is always the risk of getting into more debt and adopting bad spending habits.

Student Loan

Lets face it, the cost of education nowadays is spiralling out of control. Of course, missing out on the best curriculum and institution is not an option, even if the costs are high. To address this issue, financial institutions have Student Loans on offer. It’s a Personal Loan offered to students in order to pay for tuition, books, and maybe even a laptop.

Such a loan serves as a huge relief for students as there isn’t any processing fee and it can be deferred for up to 5 years. However, the interest is calculated from the day you take the loan, and piles on pretty quickly.

Interest on Personal Loans

There are two options when it comes to rate of interest for Personal Loans—floating or fixed.

In the case of the former, the interest rate varies as per the fluctuations in the market. Rise and dips of rates result in higher and lower repayments respectively. The fees and rates are much lower than the fixed type, but planning your budget will be trouble as the rates keep fluctuating. Moreover, there is always the possibility of paying more if the rates skyrocket.

Fixed rates on the other hand are static and aren’t affected by the fluctuations. This results in better budget plans, but you might end up paying more in case floating rates do not go up suddenly.

The decision to opt for a fixed or floating interest rate rests on you. One’s not better than the other, it is just different. This is the reason why you should assess your finances and market trends to take an informed decision. Financial institutions also have interest calculators on their web portals, so that investors like yourself can figure out which type of interest to opt for when looking at Personal Loans.

4 Factors to Consider before Taking Personal Loans

The fact about a Personal Loan is that it’s a debt, which can be a blessing in times of need, but can spell trouble if it goes unpaid. Nobody wants financial help to be a burden. To ensure this loan doesn’t transition from saviour to tormentor, here’s a checklist you should follow:

  • Hunt for a lender that charges minimum (or zero) fees for repayment processes
  • What is the benefit of taking a loan that doesn’t address your financial crunch by awarding the amount you requested? Choose a lender that can award you with the money you need. But keep in mind that you should only borrow an amount you can repay. Using an interest calculator and assessing your finances can help you in figuring your repayment ability
  • Lenders can offer the feature of drawing money you just deposited to repay the loan. This facility can help you out in emergencies, so keep an eye out for it
  • Repayments must be your sole priority once your loan amount is sanctioned. To ensure that you have a well-planned budget on your side, make sure to pick a loan that doesn’t call for compromises on lifestyle or other investments
  • Opt for a lender who offers you the freedom to bend the repayment schedule and instalments

Whether you think they are a risk or a boon, Personal Loans must only be explored after extreme caution. Consult financial experts and question every clause in the lender’s loan agreement before taking one, so that you aren’t blindsided by any hidden clauses or extra payments.

5 ideas of Personal loan for the perfect wedding that won’t break the bank

The “Big Fat Indian Wedding” is a dream that can often cost you lakhs of rupees and even more if you don’t plan it the right way.

Planning for a wedding is quite stressful and keeping all the expenses in the check is another herculean task. There are always other options you can turn towards like taking a marriage loan to cover the expenses, but before resorting to that last option, here are a few ideas that can help you get your dream wedding within your budget.

  1. Save on the wedding venue

The wedding venue can cost you a bomb. Use your memberships or friends or family members to book a club that won’t put a major dent on your wedding budget. It’s even better if any of your relatives own a farmhouse. This will save on the rent and also get you the perfect wedding experience.

The decor of the wedding venue is another expense that you can avoid. Use faux or seasonal flowers instead of their exotic counterparts and avoid ornate centerpieces by replacing them with economical ones.

  1. Keep it simple with the food and drinks

Serving delicious food is one thing but serving too much is something you can prevent. Try sticking to one or two cuisines (preferably not exotic) for the main course while the appetisers too can be restricted. A number of caterers charge differently for children and adults, so you can always negotiate on the rates.

If your wedding can’t be complete without drinks, serve it for a limited period of time instead of restricting the amount.

  1. Avoid using unnecessary accessories

Wedding accessories or favours are given as small tokens of appreciation to guests for sharing the beautiful moment with you. Traditionally sweets is the answer to your wedding favours but if you feel like keeping it simple, go with scented candles or something unique to your culture.

You can always opt for shawls and jams which are produced locally. What matters is you treat your guests with respect and love, not the money you spend on the wedding favours.

  1. Some expenses the bride can steer clear of

One thing brides often forget is that splurging on wedding gowns is an expense they can always avoid. There is little logic behind getting a dress that won’t end up in your wardrobe or could be worn again at some other grand event. The depreciation cost of a wedding dress is usually 100% so it is always wise to get a dress which can be reused.

Jewellry is another expense which diminishes your wedding budget. Think wisely and invest in a classic piece that will look good on you even after 30 years. A diamond or a gold choker will work perfectly today and tomorrow.

You can also save on makeup by getting help from a friend who can always wing that liner and gets all the contouring right.

  1. Invitations and other service vendors

Spending extravagantly on wedding invitations is a waste. Instead, go for ornate wedding cards, or try recycled wedding cards that use a single paper. If you have friends and family whom you need to post the cards, use the book post facilities or make use of the inexpensive e-cards.

These pointers can help you save on your wedding extravaganza, but if your budget still get out of hand you can always get a personal loan. Make use of the personal loan interest calculator before you choose a lender to ensure that your wedding vows are taken in peace, without compromising your future financial obligations.

Personal loan for holiday- The Adventure Junkie in You

‘All work and no play makes Jack a dull boy’ we’ve all heard of this adage, but only a few of us actually take out the time to treat ourselves to a vacation.

Taking a vacation is an excellent option but with the recent inflation, holiday packages have become more expensive than ever. Of course, you can exhaust your savings but what good will it beget if you face financial troubles on your return?

But here’s the solution—take a Personal Loan and treat it as your loan for holidays. This loan can be repaid in instalments over a period of time and the method of repayment is flexible as well. Taking a vacation loan also keeps your savings intact for emergencies. These loans are easily available and require minimal documentation compared to other loans. However, the best part is that you don’t need to submit any asset as collateral.

So, if you’ve been thinking of taking a break for a while, now is your chance to execute it.  To make things easier, here’s a list of holiday destinations that are worth visiting:

  1. San Juan, Puerto Rico

San Juan is the capital of Puerto Rico and must be your first choice if you want a vacation filled with adventure sports. With a tropical monsoon climate, it is the perfect place to enjoy a lazy sunbath or indulge in aquatic thrills, such as surfing and scuba diving at Mona Island, Vieques, and Desecheo islands.

Apart from watersports, San Juan also offers a display of historical buildings and museums for the not so adventurous. Old San Juan, with its colonial buildings and streets covered by adoquine, also makes for excellent tourist spots. The tropical terrain of San Juan also offers horseback riding, rock climbing, and hiking activities. When visiting San Juan, you could also take a quick trip to the Bahamas which offer kayaking, sailing, beach combing besides with hikes on local trails.

  1. Snorkeling in Bali, Indonesia

If you’re looking for an adventurous trip somewhere closer to India, head over to Bali. The wide variety of coral reefs make up for an ideal spot to scuba dive and interact with unique underwater ecosystem. Bali also offers thrilling extreme sport activities which include climbing active volcanoes, and cliff jumping.

The Ayung and Unda rivers offer the perfect destination to engage in whitewater rafting, but if you love surfing you could hit the island’s west side for bigger swells. Paragliding along the shores of the Indian ocean or jet packing your way in Nusa Dusa are some of the other water sport exploits you can try. Bali is also home to Gunung Batur which is an active volcano; so, if you are a real adventure junkie, you shouldn’t miss the chance to climb this volcano.

  1. Make an adventure pilgrimage to Israel

Israel has always been home to pilgrims but recent years have seen a spike in adventure tourism. When visiting Israel, you can hike on Masada and Galilee, float in the salty waters of the Dead Sea, or participate in water sport activities that happen in the Mediterranean beaches of Tel Aviv.

However, if you’ve exhausted yourself of all your energy, head underground and explore caves that were formed ages ago. Apart from cave explorations, you can also try your hand at rappelling which involves a controlled descent down a steep cliff or slope using a rope. You can also partake in extreme cycling expeditions which will take you through myriads of landscape including deserts, hilltops, and even snowy regions.

  1. Much to explore in Thailand

For a cheaper vacation filled with all the thrills mentioned above, make your way to Thailand. Formerly known as Siam, this golden land offers thrilling adventure sports which let you test your mettle and adrenaline afterburners. Fasten a hook and go zip lining through the canopies of Chiang Mai rainforests, or skydive in the clear blue skies.

You can also laze around in the sun, but if you are looking for more adventure, explore the Thai wilderness as you mountain bike. Waterfall Abseiling also has something in store for you—rappelling down the incline with nothing but water flowing parallel to your descent.

Now that you know what these destinations have in store for you, holding back or postponing your plans should not be an option for you. Apply for a vacation loan today and live your dream, or rather, enjoy your much deserved break.

Summary: The surge in the number of Personal Loans offered by financial institutions in India can’t be overlooked. Here, we take a look at the reasons for this surge.

By Kar

Dr. Kar works in the interface of digital transformation and data science. Professionally a professor in one of the top B-Schools of Asia and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a regular contributor of Business Fundas and a frequent author in research platforms. He is widely cited as a researcher. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.

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