- A personal loan is basically an unsecured loan that is specifically given to meet the loan seeker’s personal financial needs.
- As in there is no restriction put on the loan seeker. To use the funds for a specific purpose only unlike other kinds of loans such as home loans or automobile loans etc.
- Such a loan is granted only for buying those specific things only.
- The business loan is also an unsecured loan that is given specifically to the borrowers for funding a start-up, for business expansion, to repay the previously borrowed amount spent for the business purpose.
- It is a kind of loan which is given only to start a business or for its expansion.
Difference between a personal loan and business loans
|Personal Loan||Business Loan|
|Under personal loan, if you are planning for any renovations or in dire need of money for other purposes, then it is the best loan a borrower can ask for.||The business loan shall be taken only if you are an entrepreneur, then such a loan can be taken to make any sort of expenses like in personal loans|
|Such kind of loans is taken by the borrower to fund daily life events or other personal expenses.||Whereas under the business loan, are taken up to fund and meet the business expenses such as for its renovation, expansion, etc.|
|Personal loans could be taken by both an employer as well as an employee.||It can be taken by an entrepreneur only.|
|In a comparison of the business loan, the rate of interest are comparatively low.||The rate of interest on a business loan is generally higher than the personal loan as even if there is a case of default in say 1 in 100 borrowers, then they have to regain the loss incurred by charging a higher rate of interest|
|Comparatively, it is much easier to attain a personal loan than a business loan since in the personal loan, it can be attained by just showing the statement of account and it can be easily presumed whether the borrower would repay||Under business loans, the borrowers generally do not ask for small amounts and it increases the risk to recover the whole amount.|
- Just like under personal loans no collateral is taken the same as in the case of business loans too. And the factor that matters the most in attaining both kinds of loans is a high credit score.
- The banks or financial institutions hesitate in giving business or personal loans to loan seekers who have low credit scores.
- The credit scores are calculated by overlooking various factors such as
- The income statement
- Debt statement
- The time is taken to pay the last loan amount.
All of the above are the basic yet significant distinction between personal loans and business loans.