A personal loan is a quick and reliable solution to all your money requirements. These loans are dispersed easily and can be availed at meager interest rates. The amount of loan that can be availed by a customer depends on several factors. Some of the most critical deciding variables are your credit score and the borrowing period.
Why would you need to take a Loan?
Customers can take loans for a variety of different reasons. Some of the most common reasons are listed below:
1. Meeting short term obligations:
Personal loans are a great and affordable way of paying off your expensive debt. Debt taken on credit cards or vehicle loans can have a very high-interest rate. Since a personal loan is a low-interest loan, it can be used to pay off this expensive debt.
2. Planning for future purchases
In case you have some expenses such as an upcoming wedding in the family or some plans to travel then taking a personal loan is an ideal solution. Apart from this, you can also take a loan to make expensive purchases for which you might not have the funds right away.
What are the different types of Personal Loans that we Can Avail?
When it comes to choices, there are no limitations on the types of personal loans that are available to the customer. Instant personal loans are a diverse form of funding, and they can be bundled in several different ways to tailor to your needs as a customer.
Here are the different types of personal loans that can be availed:
1. Unsecured Loan:
Most personal loans are unsecured loans. This means that if you were to take this kind of personal loan, you would not be required to pledge any collateral in case of default. Unsecured loans are inherently more expensive than secured personal loans. This is because the financial institution that you are borrowing money from is taking more risk, to make up for this additional risk the company will charge more interest.
2. Secured Loans:
These are a less common kind of personal loan. A secured loan is one that is backed by collateral. In case you default on the loan, then the lender will seize your collateral. Since these loans are less risky for the financial institution, they charge a lower interest rate.
3. Fixed Rate Loans
Most personal loans maintain a constant interest rate during the borrowing period. A fixed-rate loan is one where your monthly costs remain the same, i.e. you will have to make a fixed monthly payment during the loan. These loans are perfect if you feel that there will be a rise in rates of long term loans.
4. Variable Rate Loans
Variable-rate loans generally depend on the borrowing rate set by the RBI. During your borrowing period, if there are any changes in the interest rate set by the RBI, the lender will accordingly adjust their interest rate. These kinds of loans are perfect for making short term payments. This is because they generally charge slightly lower Annual Percentage Rates than other types of loans. Variable-rate loans can be availed very easily over most loan apps on your phone.
5. Payday Loans
This kind of novel loan can be an incredibly useful short term form of financing. The idea behind a payday loan is that a customer can get some much-needed funds and repay the interest and principal with their next paycheck. Most instant personal loans apps allow you to take a payday loan.
Conclusion
Loans are a fundamental pillar of a functioning economy. Debt allows money to flow into places it is needed. Lenders can offer many different kinds of loans, and it is not surprising that customers are sometimes spoilt for choice with the options they now have. However, one thing that every borrower needs to do before getting involved in debt is to see if they understand what they are getting themselves into. Doing the proper research before selecting the right type of loan is very important to make the decision make sense financially.
