Personal Loan

Personal Loan vs. Credit Loan

This a question which almost everybody asks. In the times of financial crisis, which of these is a better credit option. Let us have a look at how they compare.

FeaturePersonal LoanCredit Card
Loan Amount₹50,000 – ₹5,000,000Depends on Income
Interest Rates10.5% – 36%

12% – 24%
Collateral RequiredNoneNone
Interest Calculation

On Principal AmountOn Outstanding Amount
RepaymentFixed EMIsFlexible EMIs

Personal Loan vs. Line of Credit

Both these loan options are great. But, each of these has its own pros and cons. Here is a comparison based on different aspects.

FeaturePersonal LoanLine of Credit
Loan Amount₹50,000 – ₹5,000,000₹5,000 – ₹500,000
Processing Time3-5 Days2 Hours – 1 Day
Collateral RequiredNoneNone
Interest CalculationOn Principal AmountOn Outstanding Amount
RepaymentFixed EMIsFlexible EMIs

Personal Loan vs. Gold Loan

Both will serve you to meet urgent cash requirements. But, one requires your gold as collateral. This should be your only point of consideration if you are eligible for both. Let us have a look at how these compare to each other in certain aspects.

FeaturePersonal LoanGold Loan
Loan Amount₹50,000 – ₹5,000,000Depends on the Value of Gold
Processing Time3-5 Days

Immediate
Collateral RequiredNoneYes, Gold
Interest CalculationOn Principal AmountOn Principal Amount
RepaymentFixed EMIsFixed EMIs

Tax Benefits on Personal Loan

Apart from the several benefits mentioned above, there are tax benefits too associated with it which many of us do not know. If you can prove that the loan amount has been used for the valid expense (regardless of the source of the loan), then you can use such personal loans for tax savings. You can even claim the tax deduction on the paid interest of the loan. There are many lenders available in the market, that are authentic and they provide an easy process to follow for the personal loan along with instant approval features.

You can claim the tax benefits on the personal loan in certain cases:

  • Housing Needs

If you have availed the personal loan for your house, then the proper arrangement for the same can create the wonders in terms of tax deductions. According to Income tax act, section 24(b), the same provides the great relief to the house buyers and provide them tax deductions on the loans, if they have availed a loan to buy a residential property or for the renovation of such properties. If you have used a personal loan amount for the down payment to buy a house, then you can opt for tax exemption.

At the same time, if the amount is used for renovation, home repairs, or reconstruction, then all these expenses will fall under valid expenses for the tax deduction purpose. To claim the tax deduction, you will need all the documents as proof that the loan amount has been used for the house. You need to preserve all the bills related to repairs, reconstructions, repairs, labors, etc. to claim the tax deductions.

  • Higher Education

If you have availed the personal loan for higher education, it also can be helpful while calculating the income tax. You can avail of the tax deduction on the interest paid by you. If the same has been availed for your child or partner’s education, then you will not be able to take the advantages.

  • Business Requirements

Now a day, people chose to avail the personal loans for the business purpose as well because it is easily available. One can get a quick disbursal of the loan amount. But, one should not forget that here the interest paid, will be considered as a business expense. Hence, the same shall result in a lower taxable income. If used appropriately, this loan can become your tax-saving tool just like it is the tool to meet your urgent, unexpected financial needs. However, one needs to know how to use the same properly. However, one needs to know how to use the same properly.

How to claim Income tax Exemptions on a Personal Loan ?

The Indian Income Tax Act allows tax deductions on personal loans for specific purposes, such as education, purchase, or renovation of your house and business expansion.

  • Amount used for Business Expansion

When the money borrowed through a personal loan is invested in a business, the interest paid towards the repayment of the personal loan can be claimed for the tax deduction.

  • Amount invested in Real-estate

When the money borrowed through a personal loan is used to purchase, construct, or renovate a house or property the interest paid for the same against the loan can be claimed for tax taxable. This deduction is possible under section 24. The maximum amount which can be claimed for deduction under this ₹200,000.

  • Loan amount used for buying an asset

In case one uses the loan amount for buying an asset, one does not become eligible to claim a tax deduction immediately, but at the time of sale of that asset. If one has used the personal loan to buy assets, the interest paid on the loan will sum up as the cost of acquisition of that particular asset. The amount for tax deducted will be added to the cost of acquisition of the asset. And it will be available at the time you sell that asset. ill be added to the cost of acquisition of the asset.

Personal Loan Settlement

Settling of a loan is also known as loan settlement, credit settlement, or debt negotiation. This is done when the borrower is not able to repay the loan to the lender. This process is to reduce the debt so that it could be easy for the borrower to repay the outstanding amount. In this, the borrower has to pay more than the outstanding principal amount and less than the outstanding amount including the interest. This makes the repaying somewhat easier for the borrower.

  • Process of Settlement

For the process of debt settlement, the borrower at first had to negotiate and convince the lender to reduce the total outstanding payable amount. Debt settlement is only possible when the lender grants permission and gets ready to accept a particular amount which is less than the total payable outstanding amount.

  • For which loan debt settlement can be done?

In most cases, debt settlement is done in case of unsecured loan and the reason behind this is they don’t have any option to recover from the guarantor or recover the outstanding amount by selling the collateral (mortgage) property. Hence the only thing they can do is do a settlement or take some legal action.

Is a personal Loan transfer Possible?

If the borrower has co-signers with them for the personal loan then that co-signer is equally responsible for the repayments and everything regarding that very particular loan. But when it comes to transferring the personal loan to someone else it is not possible in any condition.