11 Different Types of Personal Loans You Need to Know About

If you’ve ever availed yourself of a personal loan, you would definitely be aware of the convenience that it offers as a ready source of funds, owing to its liquidity as a financial instrument. It is an unsecured loan provided to working professionals for their personal use. This means that you needn’t pledge any collateral or security while applying for one. Banks and financial institutions that provide personal loans also don’t monitor how they are being used. Therefore, a personal loan also offers you a lot of flexibility. You can use one for a variety of purposes, like planning a holiday/trip, taking care of repairs/renovation of any kind, paying off various bills, or financing events like a birthday/wedding celebration.

But did you know that a few banks and financial institutions are also offering different types of personal loans, each for a specific purpose? The reason they are doing so is to make sure that you can take care of the costs associated with the respective event/purpose easily and quickly through such loans. The following are the different types of personal loans that you need to know about:

1. Festive / Festival Loans

   Celebrating a festival can really burn a hole in your pocket because of all the expenses involved, including shopping for gifts and new clothes. Therefore, banks have come up with a personal loan called festival or festive loans specifically for this purpose. The loan amount offered here is small and comes with low interest rates and processing charges. The net monthly income limit required for eligibility is also lower.

2. Wedding / Marriage Loans

   This is definitely a much-needed personal loan, as it helps couples and their respective families finance the wedding and help make it a success. A wedding has a lot of events and various related expenses (hotel bookings, hall bookings, invitations, shopping for jewellery and clothes, decorations, catering, etc.), which will surely leave a big hole in your pocket. Even though marriage loans are unsecured, please note that the interest rates offered on such loans tend to be on the higher side during the wedding season.

3. Travel / Holiday Loans

   It cannot be denied that taking a vacation – be it an annual trip to the mountains or a weekend beach getaway – will put a considerable dent in your finances. You can avail yourself of a travel loan and ensure that your next holiday doesn’t drain all of your savings. You could even use your credit card, but a personal loan comes with significantly lower rates of interest. Make sure, however, to cover all your travel expenses (and not just the cost of your flight tickets) with your travel loan.

4. Home Improvement Loans

   Need to do your living room? Replace the flooring of your house? Or build your own personal office? Whatever your requirement is, you can help finance it with home improvement loans. Since ‘home improvement’ basically means renovation of your house, you are also eligible to claim tax exemptions on the interest amount that you pay on such loans under Section 30 of the Income Tax Act.

5. Consumer Durable Loans

   Consumer durable loans refer to those loans given for the purchase of consumer durables, and these loans are usually availed when the customer wants to set up a new home. Consumer durables broadly come under two categories: digital and non-digital products. Digital products include smartphones, laptops, tablets, and printers, while non-digital products refer to home appliances such as refrigerators, air conditioners, kitchen appliances, and more. Certain individual banks also have tie-ups with retailers or manufacturers and, therefore, offer Personal Loans with lower interest rates.

6. Unsecured Business Loans

   Unsecured Business Loans are a boon for small and medium business owners, and this personal loan is precisely for such individuals who may not have any assets or collateral that they can pledge against their loan. Such loans are also helpful for SME business owners because their eligibility depends on many factors, such as repayment history and financial standing, and not just on the value of the collateral they have.

7. Education Loan

   One of the primary applications of personal loans is funding education. Numerous lenders provide education loans designed to cover tuition fees and other academic expenses. Whether you're supporting your child's education or pursuing further studies yourself, an education loan can ease the financial burden. The repayment tenure for such loans extends up to 15 years, offering a reasonable timeframe for borrowers to manage their financial commitments. With competitive interest rates starting as low as 6.35% p.a., borrowers can access loan amounts of up to Rs. 20 lakh, making education more accessible and affordable.

8. Agriculture Loan

   Farmers play an essential role in our society, and supporting their work is crucial for agricultural sustainability. Agriculture Loans are tailored for farmers, providing funds to purchase equipment, tools, and raw materials necessary for farming activities. These loans come with low interest rates, incentivising farmers to invest in their operations and improve productivity. By giving them easy access to funds, agriculture loans contribute to the overall growth of the agricultural sector.

9. Medical Loan

   In times of medical emergencies, the financial burden can be overwhelming. Medical loans offer a timely solution for individuals facing substantial medical bills without sufficient funds. These loans provide instant access to funds, enabling borrowers to address urgent medical expenses without compromising on the quality of healthcare. The flexibility of medical loans ensures that individuals can focus on recovery without the added stress of financial constraints.

10. Used Vehicle Loan

    The demand for pre-owned vehicles is on the rise and Used Vehicle Loans cater to this growing market. Individuals looking to purchase used cars or motorcycles can benefit from these loans, offered by various financial institutions, including banks and non-banking financial companies (NBFCs). The application process typically involves submitting necessary documents, and lenders assess factors such as the vehicle's condition, age, and resale value before determining loan amounts and interest rates. Used vehicle loans provide a structured financial approach, allowing individuals to meet their transportation needs without facing the entire financial burden upfront.

11. Debt Consolidation

    Managing multiple EMIs can be challenging, and debt consolidation loans offer a practical solution. By consolidating multiple EMIs into a single, manageable EMI, borrowers can streamline their debt repayment process. This not only simplifies financial management but also helps pay off debts faster and potentially save money on interest. Debt consolidation loans, such as those offered by KreditBee, provide individuals with a strategic approach to regain financial control and work towards a debt-free future.

How to Pick the Best Personal Loan Type

Selecting the right type of personal loan is crucial to ensuring that you achieve your financial goals for a specific purpose. With numerous lenders and loan options available, it's essential to follow a systematic approach to pick the best personal loan for your needs. Here are the steps to help you make an informed decision:

1. Assess Your Needs: Start by clearly defining your borrowing needs and purpose. Determine the exact amount of money required and the purpose of the loan. This will help you narrow down your options and choose a loan that suits your specific situation.

2. Check Your Credit Score: Obtain a copy of your credit report and review your credit score. Lenders use your credit history to determine your eligibility and interest rate. A higher credit score generally results in more favourable loan terms. If your credit score is less than ideal, consider taking steps to improve it before applying for a loan. If your credit score is not high, look for lenders who lend to new-to-credit users.

3. Research Lenders: Shop around and research various lenders, including banks, credit unions, online lenders, and peer-to-peer lending platforms. Look for lenders that specialise in personal loans and have a reputation for transparency and good customer service.

4. Compare Interest Rates: Compare the interest rates offered by different lenders that provide the type of loan you are looking for. Pay attention to whether the rates are fixed or variable. While fixed rates provide stability, variable rates can start lower but may increase over time.

5. Evaluate Fees and Charges: Be aware of any fees associated with the loan, such as origination fees, prepayment penalties, and late fees. These fees can significantly impact the overall cost of borrowing. Choose a lender with reasonable fee structures.

6. Consider Loan Terms: Assess the loan terms, including the repayment period (loan term) and monthly payment amounts. Longer loan terms may result in lower monthly payments but can lead to higher overall interest costs. Choose terms that align with your budget and financial goals.

7. Read Reviews and Ratings: Look for online reviews and ratings of the lenders you're considering. Reviews from other borrowers can provide insights into the lender's reputation and customer experience.

8. Check Eligibility Criteria: Review the lender's eligibility criteria to ensure you meet the requirements. Some lenders have strict credit score and income requirements, while others may be more flexible.

9. Review Customer Support: Reach out to the lender's customer support or visit their website to assess their responsiveness and willingness to answer your questions. Good customer support can be essential throughout the loan process.

10. Read the Fine Print: Carefully review the loan agreement and disclosure documents provided by the lender. Pay close attention to the interest rate, repayment schedule, and any clauses that may affect the loan.

11. Seek Recommendations: Ask friends, family members, or financial advisors for recommendations on reputable lenders they have had positive experiences with.

12. Consider Online Tools: Use online loan comparison tools and calculators to help you estimate your monthly payments, total interest costs, and the overall affordability of the loan.

By following these steps and conducting thorough research, you can confidently select the best personal loan that aligns with your financial goals and offers favourable terms. Remember that the "best" loan for you may not necessarily have the lowest interest rate but should meet your specific borrowing needs while remaining within your budget.

On KreditBee, you can find a loan option for various needs and purposes. We offer loans to new-to-credit users, and our process is entirely online, making it very convenient for borrowers. We also provide hassle-free documentation, and funds are disbursed in a little at 10 minutes in your account.