Find out what is the difference between Personal Loan and Business Loan in this article.
A loan is one of the most popular services offered by banks. It enables you to pay for various kinds of expenses and is of several different types. Typically, the bank sanctions a loan amount and charges you interest on it. You have to repay the loan in Equated Monthly Instalments, over a stipulated tenure. Two of the most common types of loans taken by people include Personal and Business Loans. So what is the difference between Personal Loan and Business Loan? Let us find out.
Whether it is something planned like a wedding or remodelling the kitchen, or an unexpected disaster like a medical emergency, a Personal Loan can save you from any such financial crisis. Personal Loans are offered by commercial banks and Non-Banking Financial Companies (NBFC). A Personal Loan becomes a viable option to cater to all your pressing needs of cash. This type of loan is also called an unsecured loan since it does not require you to mortgage your collateral with the bank.
The primary difference between personal and business loans is that the former is a multipurpose loan. Unlike Business loans, or for that matter, any other specific loan like an auto loan, or home loan, there is no regulation on the use of cash.
This loan is often regarded as the “Jack of all trades” and can be used to fund whatever you desire, be it a vacation by the beach or that high-end gadget you have been eyeing.
With minimal documents required, such as are proof of identity, income, and address, the loan is processed quickly and usually disbursed in a day. Since there is no collateral attached, the paperwork is less, and the disbursal of the loan, seamless. Also, Personal Loans usually have some basic eligibility parameters like minimum monthly salary and good credit score.
To thoroughly compare Personal Loans vs Business Loans, we need to understand the latter properly too. As the old saying goes, ‘to make money, you need some money in the first place. If you plan to start a business, a Business Loan can give you a head start to fund your expenses. If you have an established business, but you plan to upgrade the technology, inject some capital, or even hire new talents, you can opt for a Business Loan and meet your requirements.
The most significant advantage of the Business Loan is its highly attractive and reasonable interest rates. Like with Personal Loans, lenders usually do not interfere with the loan usage, so long as the money is pumped into any business-related expenses. As a borrower, you are free to use the funds as per your requirements.
The most significant aspect of a Business Loan is that you do not have to share your profits with the lenders unless they are investors. The banks and NBFCs are concerned only with the timely payment of instalments. Under the Income Tax Act of 1961, the interest paid on the Business Loan is usually tax-deductible up to a specific limit.
A significant difference between Personal and Business Loans is that the former is typically an unsecured loan. On the other hand, business loans can be secured and unsecured, depending on the loan amount you need. Usually, you do not need to pledge collateral if the loan amount is smaller, but collateral may be required if it exceeds a specific amount. The bank determines the limits for a secured and unsecured business loans, and this limit varies from lender to lender.
Several factors are highlighting the difference between Personal Loan and Business Loan are as under:
As is apparent, there are several differences between Personal Loans and Business Loans. After a thorough comparison and understanding of the differences and similarities, you can decide which type of loan can cater to your immediate needs. Before applying for either loan, make sure you use the loan eligibility and EMI calculators to understand the loan amount you can get and the estimated EMI payable against the loan.
Download the digibank mobile app on your smartphone. Launch the app and click on the "Get Personal Loan" link on the login page
*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.