A loan is one of the most important services provided by banks. Loans make it possible for you to pay for various necessities in life. When you apply for a loan, banks will authorise the loan following assessment and will charge an interest on the amount. You are required to pay the amount back in equal monthly instalments over a specified time.
Loans are available in many forms. Business loans and personal loans are two of the most prevalent forms of loans taken by individuals. What is the difference between Business loans and personal loans? Let us investigate.
What Is a Personal Loan?
A personal loan is an unsecured loan that can be used for anything. You will not have to provide any collateral to receive the loan. This is the best option for immediate financial assistance. A personal loan will help you cope with financial emergencies without the hassles of procuring a regular business loan.
Perks of Personal Loans
- No End-use RestrictionsYou are free to use the loan in any way you see fit. You may utilise the borrowed cash to pay for a dream trip, upgrade the home to a smart home, or cover health costs.
- High Loan AmountYou can avail of a personal loan of up to Rs. 50 lakhs. Your unique credit profile will determine the upper limit for the loan.
- Easy Paperwork
People will only need a few documents to apply for a personal loan. This includes an Aadhaar card, PAN card, proof of current residence, and proof of monthly income.
- Flexible Loan Payback TermsPeople may repay the loan balance over 12 to 60 months. However, the maximum loan payback time accessible to them will be known by their eligibility.
What Is a Business Loan?
A business loan is a secured loan that can be used only for business reasons. A business loan may be used for many purposes. This includes financing startups and paying salaries. Growing the current firm infrastructure and other objectives may also require finances. Applications for business loans go through high scrutiny. The process also involves a lot of paperwork and guarantees.
Perks of Business Loans
- Usage Flexibility Banks and non-banking financial companies (NBFCs) have no say in how the firm is operated. Their only interest is in the credibility of the firm availing the loan. A business loan is an ideal choice for maintaining complete control over how the amount is spent.
- Low RatesMost lenders provide fair rates on business loans compared with other forms of loans. The reason is fierce rivalry among lenders for attracting users.
- Availability of Various Lending ChoicesMost lenders will provide a variety of business loans to cater to the varying demands of firms. Hence a wide variety of lending choices are available in the market for business loans.
- Simple and convenientGetting a business loan involves contacting a lender and discussing the chances of getting funding. It is an easier and faster option than looking for investors and convincing them.
Key Differences: Personal Loans vs Business Loans
|Particulars||Personal Loan||Business Loan|
|Rules for Eligibility||Needs loan payment records, age, credit score, and monthly income.||Needs details such as the age of the firm, future goals, and projected profits.|
|Paperwork||A personal loan does not require too much paperwork.||Procuring a business loan requires lengthy paperwork.|
|Use||This loan may be used for many purposes.||Business loans are used for furthering business needs and growth.|
|Need for Assets||No security is needed.||A valuable asset is required as security for a business loan.|
|Payback||Personal loans are intended to be paid back in a short time frame.||Business loans may be paid back over an extended time frame.|
|Rates of Interest||Personal loans are unsecured. This leads to a high rate of interest.||Interest rates are lower than personal loans since business loans need asset filing.|
|Payment Time||Once a personal loan is approved, the loan amount is normally transferred to the account within three days.||A huge amount of due diligence is needed before clearing a loan request. The allowed amount takes longer to reach the loan account.|
Which Loan is Easier to Obtain?
Personal loans can be easily procured if you have a strong credit history and a regular source of income. People seeking a personal loan must have a good debt/income ratio. Personal loans may be obtained without the use of collateral. However, if your credit rating is low, loans with leverage are better options.
Credit is the main factor for approval in business financing. Lenders may request personal and business credit ratings. Lenders may also need year-on-year income and years in the sector.
Popularity of Personal & Business Loans in India
India is regarded as one of the best hubs for new firms. It now ranks third in the world for start-ups. Indians are joining the start-up scene in large numbers, owing to their advanced skills.
Indians are also investing in properties and vehicles. They are also looking for loans to meet their personal needs. This has led to the market being swamped with both business and personal lending options.
Your needs define the choice between personal and business loans. Both have various pros and cons. The basic purpose of borrowing money is to meet your needs while avoiding losses. Do you wish to jump-start your business or cover the expenses of your firm? A business loan may work for you. Business loans have lower interest rates and offer tax perks.
Do you need money immediately to cover your expenses? A personal loan may be the best option. Personal loans are easy to procure and are approved immediately.
You can decide the type of loan that is suitable for you, based on your needs. The amount required, interest rates, and the time frame for repaying the loan are other important considerations.
Piramal Finance can help you find the best options based on your needs. You can also check out the other services they offer.