The need for funds can arise at any time due to various situations, such as a medical emergency, home repairs, car repairs, or a planned purchase. There are two popular options available in India for this, i.e. cash loans and personal loans. Both options provide quick access to funds when needed, but they differ significantly in interest rates, loan amounts, repayment tenure, and affordability.
People generally prefer instant cash loans for urgent needs because these loans have fast approval and need minimum documentation. Whereas people apply for a personal loan when there is a need for a higher loan amount with a structured repayment option. By understanding the difference between the two types of loans, one can make a better choice. In this blog, we will compare cash loans and personal loans and determine which option is better.
What is a Cash Loan?
A cash loan is a short-term loan that offers immediate access to funds. These loans are processed very fast and require minimal documentation. Mostly, it is offered by fintech platforms and digital lending apps. The verification of these loans is done online through the Aadhaar card and the PAN card. This takes less time, and hence, funds are credited to your bank account within hours.
An instant cash loan is mainly for urgent financial needs like: -
- Medical emergencies
- Utility bill payments
- Short-term cash shortages
- Emergency travel expenses
What is a Personal Loan?
A personal loan is a structured form of borrowing offered by banks and NBFCs. It is mostly unsecured, which means there is no need for any collateral. When you apply for a personal loan, the lender undertakes a thorough evaluation of your income, credit history, employment type and existing liabilities. Personal loans are of a higher amount and longer repayment tenure.
Personal loans are mostly used for planned expenses like: -
- Weddings
- Home renovation
- Debt consolidation
- Medical treatments
- Business Requirements
Difference Between Cash Loan and Personal Loan
1. Interest Rate
Interest rate is one of the major factors that affect the affordability. Cash loans generally have higher interest rates. This is because they have shorter repayment tenure, require limited documents and are provided without much credit checks. Lender takes high risk in cash loans, which leads to high interest rates.
Whereas personal loans have low interest rates. This is because it has a longer tenure, and the risk assessment is more detailed.
2. Purpose of Loan
Cash loans are best suited for urgent and short-term needs like medical emergencies, car repair, home repair, etc. Whereas Personal loans are best suited for planned expenses like weddings, debt consolidation, business expansion, etc.
3. Loan Amount
An instant cash loan is mainly for short-term borrowing to fulfil immediate needs. Hence, the loan amount is quite low.
On the other hand, when you apply for a personal loan of 50,000, you get access to higher loan amounts. This is because the loans are evaluated on your creditworthiness, income and financial history.
4. Approval process
Cash loans are approved very fast, within a few minutes or hours. Standard personal loans can take a longer time in comparison to cash loans as it has to it has to go through additional verification, credit checks and documentation.
5. Loan Tenure
Cash loans have shorter tenures ranging from a few weeks to a few months. Personal loans, on the other hand, have longer repayment tenure ranging from 1 year to 7 years.
Which Loan is More Affordable?
Both cash loans and personal loans have their own advantages and purposes. Whether it's affordable to you or not depends on your financial requirements and repayment capacity.
Choose a cash loan if:
- You require funds on an immediate basis.
- The amount required is quite small.
- You can repay the fund quickly.
Choose a personal loan if:
- You need a higher loan amount.
- You want lower interest rates.
- You want a flexible and long repayment tenure.
- You have a good credit score.
Tips to follow before taking Any Loan
Before you make a final decision between a cash loan and a personal loan, here are the tips that you should follow:
- Compare interest rates very carefully. Even a minor difference can impact a lot.
- Do check processing fees and hidden charges. This can increase your borrowing cost.
- Borrow only as per your need. Avoid borrowing more than the requirement.
- Go through the repayment terms carefully.
- Don't apply for multiple loans at the same time.
Conclusion
Both cash loans and personal loans are useful when the need for funds arises. But the right choice depends on your need, repayment capacity, and urgency of funds. An instant cash loan is very suitable for emergency situations when you need funds on an immediate basis with quick approval and minimal documentation. But these loans have a high interest rate and have a shorter repayment period.
Whereas when you apply for a personal loan, you get a higher loan amount at lower interest rates and a flexible repayment tenure. This is why it is quite affordable for planned expenses. Before you opt for either of these two loans, you should compare lenders, evaluate borrowing costs, and check repayment terms.
CAclubindia
