Though there is a clear difference between a personal loan and a business loan, sometimes both of them get mixed up. This happens at a time when it’s tough to regulate between your personal and business requirements. In the case of a start-up or sole proprietorship, where you are the backbone behind your business, it is quite normal for you to borrow in a personal capacity for the purpose to fund your business. However, this isn’t advisable for the reasons germane to financial prudence.
Listed below are the reasons portraying why you must keep your business and personal loans from Bajaj Finance Personal loan or other lenders separate:
To keep your borrowing capacity for future high
As an individual, when you consider taking a loan to finance your business, your basic potential to seek other loans decrease in future. Each and every loan which you consider taking adds to your outstanding debt funding, making the bank perceive you as the borrower.
This proves to be disadvantageous if you require raising funds for an emergency from any of the lenders like Bajaj Finance Personal Loan or others at lower Bajaj Finserv Personal Loan interest rate or lower interest rate from other lenders. The bank or NBFCs like Bajaj Finance Personal loan calculates the FOIR or Fixed Obligations to Income Ratio when receiving the application for a personal loan. Fixed Obligation to Income Ratio (FOIR) refers to the proportion of one’s monthly income which is used for meeting unavoidable monthly obligations or expenses. Lenders or banks use this ratio to evaluate the EMI affordability of a loan applicant. Those having lower FOIR are considered to have lower chances of defaulting on their loan repayment. Hence, lenders prefer lending to loan applicants having lower FOIR. However, many lenders also use the EMI/NMI (Net Monthly Income) or EMI/GMI (Gross Monthly Income) ratios for evaluating an applicant’s repayment capacity, preferring loan applicants having these ratios within 50-60% level. Meeting a loan obligation from before holds the chances of your FOIR or EMI/GMI or NMI ratio to be over the set level. Holding over 50-60% level may result in your application for a future loan for Bajaj Finance Personal loan or with other lenders getting rejected.
To prevent any negative impact on the credit profile
Each loan that you take affects your credit profile. On one side, your credit ratings will be held positive if you can service all your get an installment loan nearby and make the repayment of your Bajaj Finance Personal loan or other loans on time, while the other hand portrays, it can be unfavourable if you are not able to make the repayment on time.
Penurious credit rating means that the banks or NBFCs like Bajaj Finance Personal Loan might decline to lend loans in future, and if they agree, the rendered loan will be at a higher rate.
Avail benefits of personal linked loans & business loans separately as both serve different benefits.
The products in relation to the individual loans are distinct in nature, rates, and repayment tenure. The loan catered to you specifically ranges from a car, home, personal, education, and others.
While the business and commercial loans involve overdraft or cash credit, tailor-made to meet the working capital need, merchant establishments or others, banks generally require collateral security for the business loans; however, collateral securities might not be required for personal loans. Personal loans are easier to avail, but it comes with a higher rate of interest. Though tough to avail, business loans come with a lower rate of interest. Each of the products for the business and individual is designed thoroughly to convey the best benefit. Therefore, by borrowing according to your personal capacity, you might not get relevant benefits for your commercial requirements.
To keep a fine track of the finances
It is relatively simpler when you keep your commercial and personal finances separate. By doing this, you can effectively keep complete track of the expenses, debt and various other calculations. This also assists you to keep track of the due dates for EMIs and other amounts involved.
Moreover, if you keep your commercial and personal loans separate, then your chances to utilise the fund for your personal expense is higher, which is difficult in case if you mix both your finances.
In the end, it is a personal opinion whether to take the decision to raise the loan according to your personal capacity for your own business. A personal loan is considered an appreciated product as you don’t require collaterals or securities, and no questions are asked regarding how you plan to utilise the money. However, the sum that you raise can be considerably lower and related directly to the amount earned. However, it is advisable that you keep your personal & business loan separate. If they merge, you must exercise a degree of heed and keep a thorough watch on finances.
Those still confused on whether to opt for a business loan or personal loan for meeting their business need must consider the below:
Opt for a business loan if:
– You are one of those with an established business and plan on availing a loan for a further upgrade in business and better infrastructure.
– You are one of those with collateral or security, which you can provide against your loan.
– If you are one of those financing for a particular business requirement.
– If you are one of those who require to take an advance on the invoice.
– For those in need of a higher loan amount at lower rates.
Opt for a personal loan if:
– You are planning to begin a new venture.
– You do not hold any assets to keep in the form of security or collateral and can take up the danger of risking your personal finances for your business.
– If you look for covering both your expenses of the business and your personal through Bajaj Finance Personal loan or personal loan via other lenders.