Anyone can face some or the other type of financial requirements at any time, regardless of how well you manage your funds; problems usually arise when you least expect them. Under such circumstances, your only options are to use your credit card, borrow money from friends, or apply for a loan. But every option has advantages and disadvantages. It is possible that in the time of crisis when you borrow from friends or family members, later on, it can cause some problems. Therefore, taking a personal loan or using a credit card for loan, these are two alternatives that you can consider. Even after analysing all the aspects of taking loan from credit card, credit card borrowing is significantly less convenient than personal loans. So, a personal loan is the best option if you need money for any reason, such as bearing a personal expense, consolidating debt, easing a cash flow crisis, or paying for an urgent medical bill.
Read: Business Loan
What is a Personal Loan?
Money that you can borrow for a number of reasons, such as paying for house improvements, debt consolidation, or financing your ideal wedding, is known as a personal loan. Financing agencies like banks and private lenders can all provide personal loans. You are required to pay interest on the loan you borrow from financing agency. When it comes to personal loans, certain lenders could additionally impose charges. You can borrow a large amount of money as a personal loan to repay different expenses, and you need to pay it back over the time in installments rather than in one large payment.
Due to the lack of collateral requirements, personal loans are considered unsecured. Loans for debt consolidation, home renovations, medical expenses, and other purposes are among the many categories of personal loans that are offered. Multiple loans can be consolidated into a single, lower-interest loan with the help of debt consolidation loans. Medical loans are intended to cover the cost of medical bills; home improvement loans are intended for home remodelling. The borrower usually has to show proof of income before their medical loan application is approved. With even greater ceilings and set rates, personal lines of credit function similarly to credit cards.
Important Points Prior to Filing a Personal Loan Application
Prior to applying for a personal loan, you should consider the following crucial points:
- Recognise Your Needs for Funding: It’s critical to be aware of your needs before applying for a personal loan. The evaluation will differ depending on whether you need the money for a trip or an unexpected medical need. It is crucial to determine the exact amount of your personal loan based on your precise financial needs.
- The accessibility of contactless and digital processes The day when loan applications were difficult is long gone. Personal loans can now be obtained easily and comfortably from the comfort of your home with just one click. Therefore, you should evaluate the personal loan provider by seeing if they provide a straightforward and frictionless online application, approval, and loan disbursement process. Commodities that ensure comfort and ease include digital payments, smartphone apps, direct account transfers, online applications, etc.
- Very little documentation: You must provide a minimum of documentation, including evidence of identity, proof of income, proof of residency, etc., in order to apply for a personal loan. Instead of a convoluted documentation process, look for a lender that requires as little bother as possible.
- Timing of Approval and Payment: Loans for personal use are intended to cover unforeseen or urgent expenses. Usually, you’d need the amount of the personal loan either right away or over a few days. It is crucial to evaluate the personal loan’s approval and disbursement timeframes. In order to get access to the money as soon as possible, pick a lender that offers a simple and fast loan approval and distribution process.
- Comfortable Tenure: Your monthly payments are greatly influenced by the length of the loan. The amount of monthly installments would be lower the longer the loan period. On the other hand, monthly installments for personal loans will increase with a shorter term. Make sure you review the duration requirements of the personal loan before applying.
- The lowest and maximum amount of funding that is available: The bank or lending organisation approves the loan amount after reviewing your personal loan application. Your income level determines how much of a personal loan you can get.
- Examine Different Interest Rates: The interest rate charged on personal loans varies per lender. Between 10 and 26 percent annually is the average interest rate for personal loans. Your personal loan repayment load will increase with an increase in the interest rate. Thus, compare interest rates from several lenders before applying for a personal loan and select the one that has the lowest rate.
- Fees Associated with Advance Payment or Foreclosure: When a particular period of time has passed, lenders permit you to prepay or foreclose on a personal loan. Nevertheless, if the loan is closed before the predetermined term, certain lenders demand foreclosure fees. Choosing a lender that levies minimal or no pre-payment penalties or foreclosure costs is a smart move.
- The Loan Provider’s Credibility: Pick a lender with a solid market reputation when submitting an application for a personal loan. Prior to obtaining a personal loan, evaluate the legitimacy and dependability of the lender. Selecting a reliable lender can guarantee that you are protected from any financial or legal issues that may develop during the loan period.
- The processing charge: Lenders are responsible for certain administrative costs at the time of personal loan processing. It is a small amount, but it is charged separately as a processing fee rather than being added to the total amount of the personal loan. The processing fees imposed by lenders vary. As a result, it is wise to compare processing fees between different lenders and apply for a personal loan.
Important documents for applying a Personal Loan
- A document with a national ID;
- Evidence of income (such as bank statements and paystubs);
- Evidence of residency and current address;
- Statement of bank accounts
Benefits of obtaining a personal loan
- Personal loans just need the bare minimum of documentation, and the approval procedure is speedy in contrast to other loan kinds like home loans or gold loans, which require more paperwork.
- A personal loan can be obtained online from a number of financial organisations, and if the lender is satisfied with your ability to repay the loan, funds can be disbursed in a matter of hours.
- Lenders provide you with the option to select the length of your loan, which is another important aspect of personal loans. Mostly personal loans have one to five years’ tenure for the repayment of loan. Thus, depending on your ability to repay the loan, you can choose the term. To reduce interest costs and return the loan faster, you should choose a shorter loan duration.
- In a personal loan, the borrower does not need to pledge any security or collateral.
- Personal loans are unsecured and short term loans.
- Personal loan conditions can be accommodating and customised to meet the demands of the borrower.
- Low interest rates on personal loans are contingent upon several factors, including the loan amount and the borrower’s credit score.
- You can use the money for clearing medical expenses, home renovation plans, debt repayment. Many other uses are all possible with personal loans.
- In case any kind of emergency arises and you are unable to pay unexpected bills due to the emergency, personal loans might be useful.
- Sometimes obtaining a personal loan helps to improve your credit score
Conclusion
When submitting a loan application, make sure you are meeting all requirements in order for the application to be approved. Lender-to-lender variations may exist in the requirements for qualifying for personal loans. Some common requirements do exist, though, and these include the applicant’s age, income, credit score, work status, and other factors. Verify that you meet all eligibility requirements before applying for a loan. You can prevent having your loan application denied by doing this. It is advised to confirm before applying for a loan, even though there are other options available to you in the event that it is denied.
FAQs
What CIBIL score is necessary to be eligible for a personal loan?
When applying for a personal loan, a CIBIL score of more than 720 is considered favourable.
How can I pay back a personal loan without any problem?
You can pay loan in equal monthly installments (EMIs) by electronic funds transfers (ECS) or a standing order that debits the EMI amount from your bank account.
When applying for a personal loan, do I need to offer any collateral or security?
To be eligible for a personal loan, you don’t have to offer any kind of security, collateral, or guarantee. But you may pay high interest rate.
How do the financing companies calculate the interest rate on a personal loan?
CIBIL score, repayment history, principal amount, and tenure are just a few of the variables which affect the interest rate on personal loans. The borrower can use the link to the personal loan EMI calculator.