02 Mar 2021 | 5 min read
Not only in India but across the globe, credit comes in various forms. Some of them which are quite popular worldwide viz. credit cards, mortgages, automobile loans, business loans, and personal loans. Each type of these credits comes with a particular objective. For instance, a car loan comes with the purpose to facilitate a person to buy a car, a home loan helps in acquiring a home.
Similarly, a personal loan is also a popular credit type that comes along with an abundance of objectives. One can avail of a personal loan to meet the expenses associated with education, home renovation, medical, etc. basically, for all the private reasons one can consider this loan.
Personal loans are often classified into two categories viz. secured and unsecured loans. Unsecured loans are those which aren't backed by any collateral. The lender determines whether you qualify for an unsecured personal loan as per your financial history. If you do not qualify for an unsecured loan or want it at a lower rate of interest, some lenders will offer the option of a secured personal loan where you will be required to promise collateral against it.
Here is a list of the 25 most common terms that you must know before carrying out the thought of applying for a personal loan. Let’s dive into the post ahead!
A borrower is a person who avails of a loan from a moneylender.
A lender is a financial institution that provides funds to the borrower. It can be a bank, NBFC, fintech lender, etc.
Collateral is any asset that backs your loan. In case, you are unable to pay off the loan on time or constantly defaulting on payments, the lender has the right to seize the asset you promised as collateral against the loan.
A credit agency is an organization that reviews your credit information and makes credit reports which will be checked by lenders to determine your eligibility for a personal loan.
Credit history states a record of all the borrowing and repayment transactions you have obtained. It is one of the principal elements that decide the eligibility of an individual for a personal loan.
It is a report which gets generated by a licensed credit rating agency. The report demonstrates the credit history of an individual.
A credit score is the valuation of an individual and the skill to pay off a loan. It is calculated based on his/her history of borrowing and repaying.
The principal amount of a loan is the amount that you borrow beside any kind of fees or interest.
A secured personal loan is a loan that requires the borrower to promise assets as security or collateral against it.
A loan term is the tenure of the loan. In other words, it is the time-frame extended to you to pay off the quantity borrowed.
An unsecured personal loan is a loan that does not ask the borrower to put forward any kind of assets as collateral against it.
Interest rate is simply the value that is paid by the borrower for availing a loan from a lender. It is a percentage of the loan amount which will need to be paid alongside the principal amount every month.
Fixed interest rate is one of the two types of interest rates. It remains unchanged across the entire tenure of the loan.
Another type of interest rate is the floating interest rate. It functions against the mechanism of fixed interest rate; the floating interest rate keeps changing throughout the tenure of the loan.
A guarantor is an individual who guarantees that you will pay off the loan entirely. Lenders usually need guarantors when the credit history of a borrower isn't satisfactory. In such cases, guarantors become legally accountable for the repayment of the loan.
The Annual Percentage Rate is essentially the general cost of a personal loan. The APR of a loan demonstrates its overall finance charge. It comprises the principal also because the interest element of the loan is shown as an annual rate. The APR enables customers to compare varying loan offers with different charges and interest rates.
It is the fee charged by a lender to hide costs associated with the processing of the loan.
It is one of the repayment options for personal loan. On opting for an automatic payment facility, your monthly EMIs are going to be deducted directly from your bank account every month on a certain day and you will not be required to make manual payments.
A debt consolidation loan is a type of loan which unites all of your debts into one. It comes with lower rates of interest and is an ideal option if you've got multiple loans to pay off. The club all of your debts under one umbrella; consequently, it ensures that you simply have just one loan to clear with a lower rate of interest.
When a borrower does not meet the legal obligations of a loan, s/he is claimed to be defaulting on the loan.
Once you delay your monthly EMI payments, it is known as late payment and lenders typically levy a late payment fee to customers who do not make their payments on time.
The Line of credit loan is a type of loan which does not need any sort of security or collateral and is usually offered at variable interest rates.
It is a legal document that represents the terms and conditions of a personal loan. It also consists of the rights of both - lender and borrower.
If you’d like to pay off your loan before the chosen term, you will have to give a fee called prepayment fee. Not all lenders charge this fee, but a few are there who levy this charge so as to recover a number of the cash they were expecting to gather as interest on the loan.
A payday loan is a type of unsecured loan which can be taken out on the basis of an individual’s job. It is considered an ideal alternative for financial emergencies. In case you fall short on cash close to the end of the month, a payday loan comes in handy which you can avail of for a couple of days and therefore the repayment is often executed once the salary is credited into the bank account.
Arming yourself with these terms will definitely facilitate you in performing a sheer evaluation of varying personal loan offers and then determining the best personal loan for you. As a consequence, it will also impact your overall financial picture.
But you cannot reach out to individual financial institutions as you need to know about their offers on multiple factors, therefore, Afinoz allows you to compare multiple loans of different lenders and choose the best one in accordance with your situation and needs. All you are required to do is simply download the app from the Google Play Store and flow along with the process.
Willing to get more information on personal loans? Hop to our blog section to perceive deeper information of it!