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What is a personal loan?

With a personal loan, you borrow a fixed amount of money and pay it back in instalments over a set period of time.

Unlike a car or home loan, a personal loan can be used to fund a wide range of expenses.

Personal loan definition

A personal loan is an unsecured loan. It's money borrowed that's not fixed to an asset used as collateral, such as your home or your car, like a secured loan. While this means that the lender will not seize your assets if you default on your loan payments, any late or missed repayments can negatively impact your credit score. 

You can often borrow more money with a personal loan than would be available using a credit card. The maximum loan amount, for example, with an HSBC Personal Loan is INR30 lakhs. Select customers may be eligible for loans up to INR50 lakhs based on the internal credit policy of HSBC. Interest rates for personal loans are usually lower than they would be with a credit card, although they do vary.

The maximum tenure for most personal loans in India is 60 months, or 5 years.

Repaying your personal loan

Your payments will be affected by the interest rate and loan tenure, amongst other factors. You'll typically repay your loan through equated monthly installments (EMIs), Electronic Clearing System (ECS), e-NACH (Electronic National Automated Clearing House), or by setting up a standing instruction with your bank.

Fixed interest rate loan

If you choose a fixed rate loan, the rate of interest you pay will stay the same over the period of the loan. It can be easier to budget if you always know what your payments will be.

Floating interest rate loan

With a floating rate loan, both the interest rate and your repayments could fluctuate. You need to be prepared for any changes as your payments could go up as well as down. Please note that HSBC India does not offer personal loans with floating interest rates. 

Loan tenure

You can choose how long you'd like to take to repay the loan. In some cases, you can make overpayments or repay the loan in full before the end of the agreement. If this is something you'll want to do, make sure you check that this is an option for any loans you look at.

A personal loan can also be used to consolidate existing debts.

When a personal loan might be useful

Personal loans can come in handy when you want to borrow a relatively large amount of money, and would like more time to pay it back. A credit card might be better for short-term borrowing. 

You might consider a personal loan to spread the cost of: 

  • Medical emergencies
  • A wedding
  • Education fees
  • Home improvements or consumer durables
  • Travel or holidays
  • A vehicle

If you're using a personal loan to consolidate existing debts, instead of paying multiple loans, you may be able to put these into one loan at a lower interest rate. It can be more convenient to have only one monthly payment, but by extending your debt you could end up paying more interest.

What to look for when choosing a personal loan

Each loan is advertised with a representative Annual Percentage Rate (APR), which you can use to quickly compare loans. An APR includes all applicable interest rates, fees and charges, expressed as an annualised rate.

Remember, the representative APR advertised isn't necessarily the final interest rate you'll get. This rate will depend on your personal financial circumstances, including your credit history, as well as the loan amount and tenure.

Other things could be important to you when choosing a personal loan, such as how quickly you receive the money into your account, or the flexibility to make overpayments.

How to decide how much to borrow

When you apply for a personal loan, you'll need to have a good understanding of the costs you need to meet. For example, if it's a dream holiday it will be helpful if you calculate the costs involved and have a budget for the entire trip.

Once you've figured out how much you need, it's time to look at how much you can afford to pay back each month. Taking the loan out over a longer period may reduce your EMIs, but you may pay more in interest over the full term of the loan. If your loan tenure is too short, your EMIs might be too high and you risk not being able to make your payments on time.

Are you considering a personal loan? Submit your details and an HSBC India representative will contact you with more information. 

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