Most of the consumers today are taking personal loans for their purchases and are converting the purchases into equated monthly installments (EMIs). A personal loan helps to relieve any budgetary shortfall one may come across in the purchase of assets like a car, house, children’s education or medical emergencies, etc. These loans are paid back in monthly installments in a 2 to 6-year time frame.
What is a personal loan?
A personal loan is an unsecured loan taken by a person from a bank or a non-banking financial company(NBFC)to meet some personal requirements. It is given on the basis of some standards like income level, credit and employment history, repayment capacity, etc. A personal loan unlike a home or a car loan is not secured against any asset. It is an unsecured loan and the borrower does not put up any collateral like gold or any property to get it. So the lender in default cannot auction any of the individual’s assets. The interest rate on personal loans is higher than those on home, car, or gold loans because there is a greater risk of sanctioning them. But like any other loan defaulting on a personal loan is not good as it reflects in the credit report and can lead to problems when one applies for credit cards or other loans in the future.
Purpose of personal loans
A personal loan can be used for any personal financial need and the bank does not take note of it’s use. It can be used for a house renovation, marriage expenses, a family vacation, child education, buying the latest electronic equipment or home appliances, meeting unexpected medical expenditure, or similar emergencies. These loans are also useful when one has to invest in the business, fixing the car, or clearing the payment of the new house.
Criteria of getting a personal loan
The criteria to avail of a loan may differ from one bank to another but the general criteria include age, occupation, income, capacity to pay back the loan, and residence proof. To get a personal loan one must have a regular income source whether one is a salaried individual, self-employed businessman, or a professional. The eligibility criteria are also affected by the company he is working in and his credit history.
The maximum loan duration can be for 1 to 5 years or 12 to 60 months.
Personal loan benefits
Financial gain–The personal loans offered by NBFCs and financial institutions can give financing upto Rs.25 lakhs. This fund can be used for various purposes like renovating a property, higher education, purchasing vehicles, and cover contingencies.
Short-term repayment tenor–Personal loan helps in repayment tenor ranging upto 6 months. One has to choose a period depending on one’s requirement.
The active and fast disbursal-The personal loan gets a quick disbursal within 24 hours of approval. This quick loan disbursal process makes these loans ideal for medical and related emergencies.
Collateral is not required-Personal loans are collateral-free and unsecured so one does not have to mortgage or hypothecate any asset to get the funds.
Attractive rate of interest-Personal loans come with a competitive interest rate. The low rate of interest on personal loans keeps the EMIs affordable.
The shortlist of documents–Some of the documents needed for a personal loan are KYC documents and bank account statements. The applicants who are working have to give their employee ID card and latest salary records. Self-employed ones have to submit their business proof documents, previous year’s turnover details, and income tax returns. The salaried applicants living in India have to be in the age range of 23 and 55 years to be eligible for this loan.
Uses of personal loan
A personal loan helps to do the following things and more—
1.Helps if you want to take up a professional course––Personal loans can be used to study abroad or take up a professional course.
2.Helps to provide for a child’s education—Personal loans can be taken to take care of your child’s education and payments are done in flexible instalments.
3.Helps for weddings and family get-togethers––A personal loan or wedding loan can be used for big-ticket items like the venue, bride’s dress, and smaller expenses like flowers, photography, cake, engagement ring, etc. Taking a personal loan helps in not depleting the savings account.
4.Helps for financing a vacation-–-If one wants to take an expensive vacation like going on a luxury cruise or celebrating one’s anniversary personal loans can help to finance that dream vacation.
5.Helps to refinance credit card dues––The high-interest credit card dues debt can put a heavy burden on one’s finances making it difficult to reach the financial goals. When one is carrying a revolving credit card balance one is paying compounded interest on the purchases already made which is an expensive way to borrow money. So personal loans offer fixed monthly payments which make them easier to keep track of inconsistent credit card statements.
6.Helps for the down payment of any vehicle like car or bike––Personal loans can be used when making a big purchase like a car or bike.
7.Helps for purchase of house, renovations, and refurbishments—A personal loan can be used to buy a house or for home remodelling. If you want to change your roof, set up a solar panel, remodel part of your kitchen, or any such thing and you don’t have ready cash in hand a personal loan can be a big help to let us do it. A personal loan is a good option for people who don’t have equity in their homes or who don’t want to get a home equity loan.
8.Helps to consolidate ongoing current debts—Personal loans can be used to consolidate multiple types of debts into one fixed monthly payment. It can make it easier to keep track of the bills and pay off the debt on a set schedule.
9.Helps to cover the time period between moving from one job to another—-Personal loans can be taken to do something worthwhile in between a job transition period.
10.Helps in any kind of an emergency, medical, or any other––Some common medical treatments that need personal loan are dental work, cosmetic surgery, fertility treatment, etc. Ancillary expenses like medical travel, parking, medications, and aftercare can also be financed by personal loans.
11.Helps in debt consolidation—It is one of the commonest things for taking a personal loan. If one has to carry multiple loans or outstanding credit cards having different interest rates and due balances it will lead to financial catastrophe and here personal loans can help. When one applies for a loan and uses it for debt consolidation then he is combining all the outstanding balances into one monthly payment. This debt grouping makes it easy to pay in a set timeframe. By using a personal loan you can pay off your credit cards at a lower interest rate. With a lower rate, the amount of interest to be paid can be made less along with the time taken to pay the debt off.
12.Helps in being an alternative to payday loans-–If a person is facing financial hardship he may try to take a payday loan to get through the time. Payday loans can be easy to get but they carry an extreme risk if the person cannot pay back the agreed amount in the stipulated time.
13.Helps in clearing moving costs and large purchases of any sort––If an individual is facing a long-distance relocation because of a new job opportunity then one may have to incur an expensive deal. In this case, personal loan funds can help you to move your personal belongings from one place to another, purchase new furniture, transport new vehicles, and the like.
A personal loan can be practically used for anything. The list is endless. And though there are many reasons to take a personal loan, in any circumstance it needs to be paid back with interest.