Personal Loan Vs Business Loan: Which Is Better For You

There was a time when planning your expenses as per your income and savings made the most sense. Collateral-free credit was not easily accessible, and for those without many assets, it was wise to spend what they could earn. This changed as banks, and financial service providers realised the potential of unsecured loans and the financial inclusion they could offer.

Today, you can easily avail of a personal loan or a business loan to meet any financial commitment without tapping into your savings or disturbing your cash flow. But suppose you are a self-employed individual with business and personal needs overlapping or a budding entrepreneur. In that case, it could be challenging to decide which type of loan is better for you.

This piece will compare personal loans and business loans to help you figure out just that.

What is a Personal Loan?

A personal loan is an unsecured credit that can be availed to fund individual financial needs without pledging any collateral to the loan provider. It can be availed for various reasons, including but not limited to home improvement, weddings, higher education, travel, or purchase of a personal asset.

Personal loans can range from Rs. 75,000 to Rs. 25,00,000 with a loan tenure up to 6 years. The individual loan interest rate can start at as low as 10.99% per annum, and you can even use a personal loan EMI calculator to determine how much you will have to repay every month.


What is a Business Loan?

A business loan is an unsecured credit that can give a quick infusion of cash to a growing business. While applying, you also need to submit a detailed report about how the business loan will be utilised. This could include a variety of purposes, such as:

  • Funding the working capital and cash flow.
  • Business expansion through the purchase of new machinery or assets.
  • Boost production and increase inventory purchase to meet seasonal demand.
  • Digitalization and automation.
  • Research, development, and diversification.

Unsecured business loans can start at Rs. 5,00,000 and go up to Rs. 75,00,000. Extended loan tenures between 12 months to 36 months can be availed, with the option of flexible tenure adjustment while repaying the loan. With business loan interest rates starting at 19% per annum, these loans can help you plan your business expenses at a fair cost of capital.


Which is Better?

The application process and documents required to get a successful disbursal is different for personal and business loans. To apply for a personal loan, all you need to submit are personal identity proof, KYC documents, and proof of income via bank statement or your income tax return statement.

By comparison, to apply for a business loan, you need to provide proof of business through documents like a company bank statement for the last six months, income tax returns, balance sheet and P&L statement for the previous two years, business owner’s KYC, and identity proofs.

Despite the relatively complex process, business loans offer much more flexibility in tenure management and repayment. The amount of loan you can avail of is also much higher with a business loan, but so is the interest rate. A personal loan interest rate can be lower, and the loan repayment can be finished much earlier.

In conclusion, both personal loans and business loans are viable options of quality credit and can help you achieve your goals. But to decide which is better for you, you must analyse why you need the funds, how you plan to repay the loan, and what duration of loan would suit your situation the best. Answering these questions can help you choose the right loan and access quality credit.

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