Understanding types of personal loans, features and your options: A guide to smart borrowing

We look at personal loans as a go-to option for easy and quick finance, but these different types of loans mimic the features of personal loans. Thus, becoming a personal loan by nature, if not by name. So, when you look for personal loan options, enquire your banker about other available finance products. Perhaps you might end up finding one of the best personal loans in India.

The diverse personal loan space
 

You may need some money to manage a temporary cash crunch, for a promising investment opportunity, a travel plan, a wedding, or even a medical emergency. Here are some of the different types of loans that can easily fulfil all the expectations you have from a personal loan.

• Unsecured personal loan
  Unsecured personal loans are the ones that are the most publicised, sought-after and popular personal loan category. Chances are that your bank already has a preapproved personal loan on offer and at your disposal. It is characterised by a hassle-free and often paperless loan application process, followed by a swift disbursal. You can use an unsecured personal loan for any purpose you want. But most importantly, it is collateral-free.
  
  Unsecured personal loans can be applied for by people with a regular source of income. There may be a minimum monthly income requirement as well. You must have employment for a certain period. There is an age limit on all types of loans, typically 21 to 60 years.
  
  Documents typically required in an unsecured personal loan include identity proof, address proof, bank statement, salary slip or similar income proof.
  
  
• Secured personal loans
  If you can back your personal loan with an asset that you own, you can opt for a secured personal loan. The collateral acts as a guarantee against repayment defaults, which reduces the bank’s credit risk. It is offered at a lower rate of interest compared to unsecured personal loans or other types of loans that are collateral-free.
  
  A secured loan can be applied for by self-employed individuals and entrepreneurs as well as salaried individuals. In addition to the documentation applicable to unsecured personal loans, documents of the property furnished as collateral are also required. 

• Line of credit
  Lines of credit are a smarter way of using a personal loan. Being a line of credit, the borrowing is flexible with unlimited withdrawals. FIRSTmoney is IDFC FIRST Bank’s smart personal loan product that falls into this category. Available to individuals with a credit score of 730+, some of the stellar features of FIRSTmoney include,
       
  • Instant approval of up to Rs 10 lakh credit line    
  •  Flexible EMI dates and tenure       
  • Unlimited withdrawals
  •  100% digital online application process      
  • ZERO foreclosure charges with an anytime repayment facility

The great part of The FIRSTmoney line of credit is that you can withdraw as little as ₹ 5,000 and up to your approved credit limit.

• Salary advance loan
  A salary advance loan is suitable in situations where the salary is not enough in a particular month or period. This can be due to various unforeseen financial situations. It is generally a short-duration loan that is instantly approved for salaried borrowers. Given the steady salary inflow, these types of loans are collateral-free.
  
  Salaried individuals and even self-employed professionals with a regular income flow are eligible for a salary advance loan. The minimum monthly income, age criteria, and documentation needs may vary across lenders. Documentation typically includes bank statements, salary slips, Aadhaar and other KYC documents, etc. 

• Debt consolidation loan
  These types of loans are designed to reduce a person’s EMI and interest cost burden. You can use a debt consolidation loan to consolidate multiple existing loans into one at a lower rate of interest and save money on the surplus interest you were paying. 
  
  Personal loans for debt consolidation can be obtained without any collateral requirement. Applicants with a good credit history are eligible for these types of loans. The IDFC FIRST Bank Debt Consolidation Loan can be applied by furnishing a PAN and one Official Valid Document only. Age limits of 23 years to 60 years apply, while a minimum monthly income of Rs 25,000 is a precondition.
   

A few more personal loan options
 

Just as a rose by any other name would smell as sweet, a personal loan by any other name would be as useful. Here are a few more, some other types of loans that are are categorised as personal loans, but are named according to their uses. . These nomenclatures help customers be aware of the various utilities of personal loans,   and apply   accordingly for the same, when required. These loans have the same requirements as personal loan eligibility criteria and documentation. 

• Travel loan – A travel loan or holiday loan is nothing but a personal loan that is highlighted for travel suitability. With attractive interest rates and easy documentation, applying for a travel loan may be a convenient way to finance a vacation.
• Wedding loan – A wedding loan is a personal loan by nature that will help you organize a wedding without the immediate financial stress that comes with it. 
• Medical loan – Another type of loan that has personal loan features is a medical loan. It is handy in situations where the medical costs exceed the sum assured of a health plan, or if the borrower doesn’t have an active health insurance policy.

Factors to consider in a personal loan
 

If you are looking to select from the various types of loans within the personal loan options, there are various factors that you need to consider.

• Credit score – Being mostly collateral-free, personal loans may require a good credit score. It is recommended to confirm the credit score requirement beforehand, to avoid rejection of the loan application.
• Loan amount – A personal loan eligibility calculator will help you find out the loan amount you are eligible for. Alternatively, you can also enquire with the bank for the same.
• Repayment flexibility – A personal loan repayment schedule should not become a cause of financial stress for you. Always opt for personal loans that have a convenient repayment option.
• Interest rate – The interest rate is one of the first things an applicant looks at while comparing personal loan options. The personal loan eligibility calculator will help you calculate the interest cost against your loan.
• Cost and convenience – Also, have a look at the incidental costs involved with the loan. A low or nil processing fee is always an added attraction when selecting these types of loans. The loan application process must be hassle-free, and paperless in this day and age.

Choose the smart personal loan option
 

Upon close examination of the different types of loans in the personal loan category, it is safe to say that a line of credit like FIRSTmoney certainly has its advantages. The interest cost is linked to credit limit utilisation rather than the disbursed amount. Foreclosure doesn’t cost you a penny, and the credit limit is always at your disposal. Get the smarter loan option with FIRSTmoney today! 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.