Applied for a personal loan? Read this

Although personal loans are easy to avail and you can always rely on them in a financial emergency, they are also expensive as compared to any other kind of loan. Therefore it is advisable to make sure that the loan you are borrowing is always used for fruitful purpose.

Personal loans are an answer to all our big financial problems. If you want to, in an addition to a house, buy a new car, take a vacation or even consolidate your credit cards dues, personal loan is the best option you can rely upon.

These loans can be easily availed from a number of financial companies both at easy interest rates as well as flexible terms and conditions.

However the rates and conditions differ from company to company. But there are some common conditions that almost every bank or a financial company follows. Here a few of them:

1. One must have a creditor's proof stating about a steady job, including past paychecks.

2. Personal loans are offered from Rs 20,000 up to Rs 20 lakh.

3. Special personal loan schemes for doctors, chartered accountants, engineers, architects, CS & ICWA.

4. No requirement of a guarantor or collateral to avail a personal loan.

5. One can get a personal loan both at a fixed or a floating rate.

6. One needs to have a bank account to get a personal loan.

7. There are easy EMI options for repayment and also the loan tenure can vary from a period of 12 to 60 months.

Although one can avail a personal loan easily from any financial institution it is important to look at the terms and conditions and make sure you are not paying more than you bargained for due to interest rates and loan fees on the amount of money that you borrow. However some companies also place limits on how much you can avail and what type of bank account you have in order to secure a personal loan. So keep in mind that a minimum income may be necessary.

Also there are two categories -- secured and unsecured -- under which a bank or a financial company extends a personal loan.

Secured personal loans can be availed against a home or any other residential property that is kept with the lender as a security. These loans are offered at low interest rates because a lower risk is associated with them. The risk involvement is low due to the mortgaged security which can be seized by the financial company in case the borrower defaults. Mostly these loans are given to home owners as property is considered the best form of security.

On the other hand, there are unsecured personal loans, which can be availed by a borrower without keeping any security with the bank. The interest rate charged under this category is much higher as compared to the secured personal loans category because the risk involved is higher in such a case. This kind of a loan is beneficial for a borrower who has a poor credit rating and generally faces problems while getting her/his loan approved.

Personal loans are getting popular because of easy access and attrative rates of interes. But if one wants to take a personal loan, the rate charged by banks would be of prime importance for the borrower.

There are many banks and financial companies that offer you affordable rates of interest on a personal loan but the interest charged also depends on the loan tenure.

Both loan tenure and interest rate charged by the bank are inversely related to each other. If a borrower avails a loan for a longer tenure, the interest charged is higher where as if a loan is taken for a shorter period then interest rates tends to be low.

Photograph: Simon Cunningham/Creative Commons