What are Personal Loans?
Personal loans are retail loans that are quite distinct from mortgages, auto loans, and gold loans. Since personal loans are mostly unsecured, they do not necessitate the use of any collateral.
Besides, the interest rates on personal loans are lower than credit cards, so people can use them to pay for a vacation, education, a wedding, or even to pay off credit card debt. One may even utilize personal loans to launch a business.
In this article, we discuss personal loans, the benefits of personal loans, and how to avail of online personal loans.
Features of Personal Loans
Principal Amount– Borrowers can get up to Rs. 25 lakhs in principal to cover their current and future demands. The loan principal is determined by the borrower’s income and credit rating.
1. Terms of Repayment
A personal loan provides the flexibility of tenure. Borrowers can adjust the loan’s payback period according to their needs and budget.
2. No Collateral Requirement
Since personal loans are unsecured loans, the borrower does not need to provide any collateral to get a loan. It is a fantastic feature because it eliminates the need for an applicant to contemplate pledging any asset of value.
3. Documentation Requirement
A personal loan requires fewer papers when compared to other loans such as home loans. The only documents required are income, identification, and residence proof, along with a passport-size photograph. These documents can be submitted and confirmed online without the applicant leaving home or meeting with a representative from the financial institution. It helps speed up the loan application process while also saving a lot of paperwork.
4. Cheaper Interest Rates
There is a significant difference between personal loan interest rates and credit card interest rates. It is because personal loans are available at a low rate of interest, making the EMIs manageable, such that the borrower does not have to stress about making payments.
5. Quick Disbursement
The loan can be disbursed within a few hours after authorization of the application. If a borrower can get a pre-approved loan offer, turnaround times can be as short as a few minutes.
Benefits of Personal Loan
1. Variety and Flexibility in Purpose:
Some loans can only be utilized for a specific purpose. For example, when you take out a car loan, you can only spend the money to buy a car. On the other hand, personal loans can be used for various things, like debt consolidation and medical emergencies.
2. Lower Interest Rate:
The interest rates for personal loans are lesser than those on credit cards. Individuals with a good credit history may be eligible for more affordable personal loan rates. In addition, you may potentially qualify for a loan amount greater than your credit limit.
3. No Requirement of Collateral:
You can get accepted for an unsecured personal loan without putting up any collateral. It means you won’t have to put up your car, home, or other valuables to secure the loan. Of course, you’ll face severe financial penalties if you do not repay the loan on the agreed-upon terms.
4. Easy to Manage:
Debt consolidation is among the reasons people take out personal loans. Managing a single personal loan is more manageable than considering many credit cards with different interest rates and payment dates.
5. Tax Benefits:
A personal loan also benefits, allowing you to claim a tax credit if the loan amount is used for home renovations. Section 24B provides for a benefit sum of Rs 2 lakh. However, you must offer sufficient paperwork to demonstrate the use of funds for the purpose mentioned above.
Cons of Taking a Personal Loan
Interest rates may be greater than those offered by other options.
Personal loans are short-term solutions and carry a higher interest rate when compared to auto loans or home loans. People who have no credit or poor credit scores will be subjected to higher interest rates.
A personal loan may attract high fees and penalties
The cost of borrowing increases when fees and penalties are attached to it. For instance, origination fees on some loans can range from 1% to 6% of the loan amount. Furthermore, loan processing fees may be added to the loan amount.
It may so happen that some lenders will charge you a prepayment fee if the loan is paid off before the end of the term. One should try to understand all of the charges and obligations before applying for a personal loan
Is Taking a Personal Loan the Right Option for You?
Personal Loans is the right option for you if:
- You require funds right away. Many lenders that operate online can provide loans in a couple of days.
- You have a good credit rating. Borrowers with good credit are eligible for the lowest interest rates.
- You wish to get rid of debt with a high-interest rate. Personal loans might help you consolidate and pay off high-interest credit card debt.
- You’ll put the money toward necessities. Personal loans are also helpful in paying for unexpected expenses or remodeling your home.
How To Avail of Online Personal Loans?
Fill out all the essential information on the lender’s website using digital know-your-customer details, which most financial institutions accept as legally acceptable paperwork.
Alternatively, you can make use of online aggregators like Finpedia that give you a transparent view of all the charges involved and the eligibility criteria beforehand, helping you make an informed decision.
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