Personal Loans First Guide

A Personal Loan is loan you borrow from a lender to use for your private economy. The lender can either be an institution like a bank or an investment broker; or it can be a private lending company. You can either apply for the loan on the internet or in your hometown.

You can use a personal loan for a variety of purposes like education, vacation, vehicle repairs, home repairs and legal bills. You can also use it for debt consolidation.

Personal loans are regularly confused with a line of credit; and even though there are some similarities it is not the same. When raising a private loan you will be paid a lump sum of money, while you can access your funds up to your credit line with a line of credit. Then you can have the amount you need; when you need it.

Personal loans can be either secured or unsecured. Secured loans like Home Loan mean you will offer the lender some type of collateral that they can claim in the event you don’t repay the loan. This can be a vehicle, land, or other asset you own. Unsecured personal loans mean there is no collateral. The interest rates for unsecured loans are higher because there is a greater risk of non-payment.

The terms of a personal loan are generally one to five years. The terms of your loan will depend on the lender and the amount of money you borrow. It is important that you understand the loan terms prior to accepting the funds.

You will have a lower payment if you raise a loan with longer terms. But in the long run you will pay more because of the higher Personal Loan interest rates. So never borrow more than you need. And try to pay it back as soon as possible. To avoid the risk of failing to pay the loan, set the monthly payment to something within your reach.

The most common use of a personal loan is to consolidate other debts. This is a great way to have one monthly payment and reduce your monthly expenses. However, this scenario only works if you are willing to set a budget and life within the boundaries of it. Too often, a person who gets a personal loan to consolidate their debt racks up huge debt again quickly. Then they not only have that debt to pay again, but now they have a personal loan payment to meet each month as well.

It is wise to enroll in a debt management course if you feel you may be at risk to continue the cycle of accumulating more debt. These can be taken for free at many non-profit credit counseling centers.
Personal loans are a great way to access the money you need quickly. The application process is simple. You will generally need to verify employment, income, and residence. The lender will pull a credit check. You will likely still qualify for a personal loan if you have bad credit or no established credit. However, be prepared to pay a higher interest rate and have some type of collateral to offer.

personal loan vs Loan against property

You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or even finance your child's wedding. The first thing that would come into the mind of most of us is,
'Where would I get the money from?'

There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a Personal Loan for the amount required, or you could take a loan against your property.

What is a loan against property?

A loan against property (LAP) is exactly what the name implies - a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property's market value, usually around 40% - 60%. Loan against Property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.
What purposes can I take a loan against property for?

Loan against Property can be taken for following purposes:
1. Expanding your business
2. Getting your son/daughter married
3. Sending your son/daughter for higher studies abroad
4. Funding your dream vacation
5. Funding medical treatments
what kind of properties can I mortgage for a loan?

You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.
What are the eligibility criteria to get a loan against property?

These criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:
1. Your income, savings, debt obligations
2. Cost/value of the property mortgaged
3. Your repayment track record for other loans, credit card etc.
what are the normal interest rates and tenure for repayment offered for a loan against property?

Interest rates on loan against property range from 12% -15.75% and the loan tenure can be up to 15 years.
How is a loan against property different from a personal loan?

Loan Against Property	Personal Loan
The individual takes the loan by mortgaging the house property	An individual can take a personal loan for personal use without any security or guarantor
One of the cheapest retail loans after home loans; usually in the range of 12% - 16%	Higher interest rates compared to LAP; usually issued at interest rates in the range of 16% - 21%
Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper	Since the rate of interest is high, the Equated Monthly Installments (EMI) for personal loans are high
Maximum loan eligibility is determined primarily by the value of the property and income	Maximum loan eligibility is determined primarily by an individual's income
Maximum loan tenure for LAP is up to 15 years (180 months)	Maximum loan tenure for personal loan is up to 5 years (60 months)
Secured loan	Unsecured loan

What documents are required for applying for a loan against property?
Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.

Salaried Customers	Self Employed Professionals	Self Employed Businessman
Application form with photograph	Application form with photograph	Application form with photograph
Identity and Residence Proof	Identity and Residence Proof	Identity and Residence Proof
Latest Salary-slips	Education Qualifications Certificate and Proof of business existence	Education Qualifications Certificate and Proof of business existence
Form 16	• Last 3 years Income Tax returns (self and business) • Last 3 years Profit /Loss and Balance Sheet	• Business profile • Last 3 years Profit /Loss and Balance Sheet • Last 3 years Income Tax returns (self and business)
Last 6 months bank statements	Last 6 months bank statements	Last 6 months bank statements (self and business)
Processing fee cheque	Processing fee cheque	Processing fee cheque

A loan against property is one of the best ways to raise money. The only disadvantage of such a loan is that if the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property. Base your decision on your repaying capabilities.

LOANS AGAINST LIFE INSURANCE POLICIES

There are many banks providing home loan but loan will cover maximum 85% of your property value. Your dream house cannot be 100% funded by a home loan as Banks are not allowed to do so.
This is to serve two purposes. Firstly, 85% limit ensures that the person taking the loan has a significant risk in the house. Secondly,  in case of fall in property prices, lender (viz. bank) has sufficient security against the loan. Although this will make it difficult for the borrowers with insufficient savings to make down payments though they are earning decent salaries.
It is possible to take another loan to cover the complete funding but then it has to be borne in mind payment of  EMIs (Equal Monthly Installments) of both the loans. Study say that an individual’s EMI should not exceed 50-65% of his gross income.
Another point to remember is that a personal loan affects home loan repayment capacity. Mortgage lenders regard the loan eligibility based on the repayment capacity.
Income, age, qualifications, work experience, the number of dependents, job profile, spouse’s income (if any), assets, liabilities (which include personal loan), continuity of occupation and savings history are few elements considered while assessing the repayment capacity. So the alternate could be to borrow against liquid asset like life insurance as they come at a cheaper cost than personal loans and credit card.
Infact this could prove to be the best option if the Insurance Company lends the amount. Then you could benefit in two ways, firstly, the low interest rate and secondly, convenient repayment schedule. But, one can borrow against an endowment policy only (not term policy or unit-linked plan). LIC allows one to borrow 90% of the surrender value of the policy on which an interest of 9% is to be paid half yearly.
Alternatively one can choose to deduct the loan amount at the time of claim payments. Or, a loan can be raised by pledging the insurance policy with a bank.
In both the cases, in the event of ones death, the benefits will repay the loan outstanding and any surplus left-over is paid to the nominees.