Guide to Various Personal Loans Available in India, Detailed Explanation Included
In India, two popular types of unsecured credit products are debt consolidation loans and personal loans, each designed to cater to different financial needs.
Debt consolidation loans are specifically designed to combine multiple existing debts, such as credit cards, personal loans, and payday loans, into a single loan. This simplifies repayments and, ideally, reduces the interest burden due to a potentially lower interest rate compared to the original debts. Personal loans, on the other hand, are multipurpose loans that can be used for various needs such as weddings, travel, education, medical expenses, or home renovation.
When it comes to interest rates, debt consolidation loans are typically structured to offer lower interest rates than high-cost credit card debt. Personal loans, while having a broader range of interest rates (11% to 22% per annum), are still likely to be cheaper than credit card interest rates if used to replace debt.
Both products are repaid in fixed monthly installments (EMIs) over a chosen tenure. The main advantage of a debt consolidation loan is the reduction of interest burden on high-cost debt by replacing it with a lower-rate loan and simplifying repayments into a single EMI.
Eligibility for debt consolidation loans may include specific criteria such as a minimum outstanding debt from specific sources, while personal loan eligibility is based on credit score, income, and financial history. The process for personal loans is generally straightforward, with funds disbursed for any approved purpose without restrictions on usage.
Advantages of debt consolidation loans include the reduction of interest burden and simplification of repayments, while personal loans offer flexibility for any financial need, with pre-approved offers often available for eligible customers.
Here's a quick comparison of the two:
| Feature | Debt Consolidation Loan | Personal Loan | |-----------------------|-----------------------------------------------|-------------------------------------| | **Purpose** | Combine and repay multiple debts | Any personal expense | | **Interest Rate** | Lower than credit cards (from ~9.99% p.a.)[3] | 11%–22% p.a.[1][2] | | **Repayment** | Single EMI for multiple debts | Single EMI for new borrowing | | **Eligibility** | May require proof of existing debt[3] | Credit score, income, profile[2] | | **Usage Flexibility** | Limited to repaying existing debts | Flexible—no restrictions |
In summary, debt consolidation loans are tailored for those with multiple high-interest debts, aiming to lower interest costs and simplify repayments. Personal loans are general-purpose loans, not specifically for consolidating debt, but can be used for that purpose if needed. Choosing between them depends on your financial situation: debt consolidation for simplifying existing debts at lower cost, and personal loans for new financial needs.
For salaried individuals, the minimum age is 21 years, maximum age at loan maturity is 60 years, minimum employment period is two years in total with 1 year at current organization, and minimum monthly income varies across lenders. For self-employed individuals, the minimum age is 25 years, minimum business period is two to three years in the current business profession, and the minimum annual income is Rs 1 lakh. Lenders prefer borrowers with a Credit Score of 700 or higher because their chances of defaulting on repayment are lower.
Additionally, medical loans are available for healthcare emergencies or planned medical procedures, and travel loans are designed for funding family trips and vacations. It's important to note that the eligibility criteria for personal loans, especially for self-employed professionals, may not be specified in the provided text.
A debt calculator can help individuals calculate the EMIs for both debt consolidation loans and personal loans, considering factors such as the loan amount, interest rate, and repayment tenure.
Business owners may find debt consolidation loans beneficial in merging various high-interest business debts into a single, potentially lower-interest loan, which can simplify repayments and improve cash flow.
