PERSONAL LOAN IS A SECURED LOAN OR NOT?

WHAT IS A PERSONAL LOAN?

A Personal loan is mainly an unsecured loan. Therefore, there is no need to deposit any security or collateral to the bank or the moneylender by unsecured loan. Therefore, the rate of interest is slightly higher in the case of a personal loan as compared to the other secured loans.

A personal loan has a lot of features that make it different and unique from the other loans. The money is disbursed in no time in case of a personal loan after accepting the application of a personal loan. The amount of the EMIs can be calculated with the help of an EMI Calculator Personal Loan.

Personal Loan

A PERSONAL LOAN IS A SECURED LOAN OR NOT?

There are mainly two main types of personal loans. A personal loan can be a secured loan, or it can be an unsecured loan too.

• SECURED LOAN- A personal loan can be a secured loan. By secured loan, the borrower has to deposit some collateral or security to the bank or the moneylender. In simple words, the money lenders or the banks sanction a personal loan when the borrower pledges an asset as a security. For instance, a person can pledge his plot, gold, house, vehicle, fixed deposits, or securities as collateral. Also, if there is a default in the case of a secured personal loan, the moneylender can seize the collateral and liquidate it to recover the loss or the borrower's debt. The creditor has all the legal rights to do that. There are different types of secured loans such as gold loans, mortgage loans, vehicle loans, loans against fixed deposits, etc.

• UNSECURED LOAN- On the other hand, a personal loan can also be an unsecured loan. An unsecured loan means that there is no need to pledge any collateral as a security to the bank or the moneylender. In this type of loan, the money lenders mainly scrutinize the borrower's credit score and check their repayment history. The applicants also need to have a credit score of 750 or above to avail of a personal loan easily. In case of default in a personal loan that is unsecured, the credit score and the borrower's credit report will be affected.

INTEREST RATES OF SECURED V. UNSECURED PERSONAL LOANS: -

Unsecured personal loans usually have a higher rate of interest than the secured personal loans. This is because money lenders often see unsecured personal loans as riskier. Without the security or the collateral, the moneylender may worry about whether the borrower will be able to compensate the loan or not. Therefore, an unsecured loan has a greater burden or risk, which is why the interest rate is higher in this situation. However, a secured personal loan has a lower rate of interest. Therefore, the SBI Personal Loan Interest Rate is lower as compared to the other loans.

SOURCES FOR THE SECURED AND UNSECURED PERSONAL LOANS: -

There are mainly three types of lenders that offer personal loans, which are as follows:

• Banks

• Credit Unions

• Online loan companies

The money lenders can vary with the eligibility criteria and the rate of interest. Most banks often prioritize those customers who have higher credit scores and good credit history. On the other hand, credit unions may be less stringent in their loan-granting requirements and may also provide cheaper interest rates. A person can also avail of a personal loan from an online money lender. Online money lenders may offer lower interest rates for applicants with a good credit history and a high credit score. This process is also convenient because the whole process of the loan is online.

CONCLUSION: -

A personal loan can be a secured loan or an unsecured loan. If you want to get the best for you, you need to research and compare different loans offered by different banks and then select the one, which is the most suitable for you.

The Role Of Guarantor In Personal Loan

During times where most people have either been fired from their jobs or have suffered salary cuts, it is very difficult to do the necessary unavoidable expenses. Therefore, many people resort to Personal Loans for this purpose. Since personal loans give you the flexibility of the end-user, it is widely used for purposes such as funding education, medical expenses, home renovations etc.

Repayment obligation:

The legal role of a guarantor turns into the borrower's legal role if the original borrower defaults. This means that on default by the original borrower, the guarantor becomes liable to pay back the outstanding amount which the original borrower has not paid. A guarantor is the first person the credit lending agency would turn to for extracting the outstanding money.

The monthly salary of the guarantor can be taken to compensate for the original borrower's default. The bank or any other credit lending agency can turn to the court for this.

Assets accountability:

If the original borrower is nowhere to be found, and the guarantor's salary is not enough to compensate for the outstanding amount, the personal assets of the guarantor can also be sold by the credit lending agency to recover the loss. Therefore, before signing as a guarantor, be sure of your repayment capacity and if it would be enough to pay back the money the original borrower owed.

Credit Score:

If you are a guarantor of a loan that has been defaulted, your credit ratings would be negatively affected. Even if you have always paid your credit payments timely, the liability towards you as a guarantor is just the same as the borrower when the original borrower defaults.

Reduced borrowing capacity:

On default, the profiles of the guarantor as well as the original borrower would be reported to the CIBIL authorities, Since the amount the original borrower has defaulted and is now liable against the guarantor. This will show up in the guarantor’s CIBIL score and would reduce the credit availing capacity of the guarantor.

Once you have signed up for this responsibility, it is very difficult to withdraw from this responsibility then. For withdrawal, the approval of both the parties, the credit lending agency and the borrower is required. The bank would usually approve only if there is another guarantor available to sign up for the liability.

Difference between the borrower, co-borrower and guarantor -

• People often find it troublesome to differentiate between these terms. Let us understand who they are and what their role is.
  

• A borrower is a person who has taken the loan and all the liability lies on the borrower at first.
  

• The borrower is supposed to repay the outstanding amount on time.
  

• A co-borrower is a person whose name appears along with the borrower's name in the loan document.
  

• The borrower and the co-borrower are equally liable to pay back the loan.
  

• A guarantor comes to the picture at the last when the borrower, co-borrower are unable to pay back the loan. At this time, the guarantor becomes liable to pay back the outstanding amount of the loan.

Who can apply for personal loans?

Most salaried individuals and self-employed people can apply for personal loans. With impressive interest rates and Instant Personal Loan, Banks such as SBI, ICICI offer attractive Personal Loan products.

For those who need the funds urgently, a personal loan becomes an easy choice. It is recommended to have a detailed comparison before going for any personal loan from any bank. There are numerous websites that show you the comparison between different interest rates, etc.

You can use tools such as ICICI Personal Loan Calculator etc. to do an accurate and fast calculation of your monthly EMI's. Doing this calculation manually becomes a tiring task, using calculators like these greatly help you save your time and get accurate amounts. Personal loans have proved to be a boon for people in distress because of no money and have helped them giving them financial independence and power.

Is CIBIL score matter while avail personal loan

Personal Loan

A CIBIL score is important to measure the creditworthiness of the applicant. Most of the bank and non-banking financing companies ask for the credit score during the application of a personal loan. The loan amount depends upon the credit score and the overall credit history of the borrower. Personal Loan Calculator is an online tool for calculating the loan amount. A personal loan comes in the category of an unsecured loan. For an unsecured loan, an applicant is required to provide a good credit score above 750. Banks and non-banking financing companies(NBFCs) monitor the borrower's profile strictly. To get the fast approval of the personal loan one needs to maintain a good credit score. An applicant is eligible for various offers if he has a good credit score. A good credit report can help the individual in more than one way. Lenders ensure the ability of the borrower to repay the loan before approving the personal loan. One can get a personal loan from both a private bank and a public bank. For information regarding personal loans and their different schemes available at different banks check the online website.

Maintaining a good credit score is important while getting a personal loan. Below are the steps mentioned that will help in maintaining a good credit score:-

Pay monthly instalments timely

This is the most important step. Paying all your monthly instalments timely is necessary for getting a personal loan. Try to pay all your EMI on time. Keep a close track of your EMIs. Not paying the monthly instalments timely may decrease your credit score and can also increase your future debts. Make sure to pay all your monthly instalments on time to maintain a good credit score. Many banks and non-banking financing companies charge late repayment fees on personal loans, so the applicant must make sure to clear all the monthly instalments timely to avoid unwanted loss.

Check your credit score

Monitoring your credit score is important to get a personal loan. Try to keep a close track of your credit score. Your credit score may also impact your overall credit report. One should make sure to keep a close look at credit scores. One can check the credit score online with convenience.

Pay your credit card bills

Paying your credit card bill timely is important to maintain a good credit score. Try to avoid buying unnecessary things from your credit card. Buy only needed items. Clearing your credit card bills timely can help you in maintaining a good credit score. An applicant can easily pay the credit card bills in the form of monthly instalments. Paying credit card bills through EMI is a convenient and smart option.

Avoid taking several loans

It is recommended to the borrowers to avoid taking several loans at one time. Taking several loans at one time can increase the debt leading to the financial burden. Taking several loans may also decrease the credit score. A borrower is requested to take one loan at a time to avoid any extra loss and debts.

In the above article all the points are mentioned which can help in maintaining a good credit score. An applicant can apply for personal loans across the country at any preferred bank. HDFC Bank Personal Loan can be applied easily online as well as offline. The bank offers several schemes for personal loans. An applicant can submit an application for a personal loan easily at the bank by submitting documents that include identity proof, residence proof, age proof, employment proof and others as requested by the bank.

Conclusion

A Personal loan can only be applied if an applicant has a good credit score. An applicant with a good credit score and report can easily apply for a loan at any bank or non-banking financing institution.