Need a personal loan? Here's what you should know

What is a Personal loan?

A personal loan is a sum of money you can obtain to use for a mixture of purposes. For example, you may use a personal loan to combine debt, pay for home improvements, or plan a dream wedding.

Personal loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over time, typically with interest. Some lenders may also charge fees for personal loans.

A personal loan is a loan that does not require a guarantee or security and is offered with minimum documentation.

You can use the funds from this loan for any recognized financial need. Like any other loan, you must repay it following the agreed terms with the bank.

Generally, this can include a few months to a few years in easy equated monthly instalments.

You are free to use the funds you get from a personal loan in any form you wish – plan a holiday, buy a gadget, pay for medical treatment, use on home renovation, spend on a wedding, finance your children’s education.

A personal loan operates pretty much the same way as most loans. You apply for a loan, submit the documents, the bank verifies your creditworthiness and makes a loan offer. If you accept it, the funds are transferred to your bank account, and you can use them any way you wish.

You must repay the loan in equated monthly instalments (EMI), which will depend on factors such as loan amount, tenure and interest rate.

Who can take a Personal loan?

The general eligibilities for taking a personal loan can be understood under the following headings:

• Age limit – The age limit to get a personal loan is 21 to 68 years. Within this age limit you can get a personal loan for your required amount.
• Type of employment – The types of employments to get a personal loan are salaried, business owner, self-employed professional, retired, student and home maker.
• Employment status – The person who wishes to take a personal loan should be employed or in business for at least 2 to 5 years.
• Minimum monthly income – The minimum income should be Rs. 5,000 or above.
• Work experience – The work experience required to get a personal loan are 1 to 3 years and above.
• Credit score – An individual should have a CIBIL score of atleast 750 to get a personal loan.

Features of a Personal loan

• Loan amount up to Rs. 25 lakhs

A personal loan is to be given for an amount of up to Rs. 25 lakhs. The applicant can choose the amount of their personal loan before filing up the loan application.

The loan amount can be decided after considering all the expenses that are to be met with the help of this personal loan amount.

• Quick disbursal

A personal loan can be obtained fastly. There wont be much time taken for the loan to be processed.

After the loan is applied, the lender has to check all your eligibility and then approve the loan amount as per your eligibility.

• Unrestricted End-Use

The use of the personal loan amount is not controlled by the lender. The end-use of the loan amount is unrestricted.

The usage of the loan amount is to be fully the choice of the borrower.

• Repayment tenure

The repayment tenure is the period during which the loan amount has to be repaid to the lender along with the agreed interest.

The repayment tenure depends on various factors like the loan amount and the amount of monthly instalments.

A higher repayment tenure is the best option as there will not be much burden on the amount of EMI by the borrower.

• Interest rates

Interest rates depend on the credit score of the individual and the terms and conditions of the financial institution.

The interest rate has to be lesser so as to reduce the overall burden of the loan amount.

• Eligibility criteria

There has to be a certain eligibility criteria that has to be fulfilled by the applicant so as to apply for the loan amount.

The eligibility has to be checked before approval of the loan amount by the financial institution.

Benefits of a Personal loan

Taking a personal loan is helpful to a person to meet financial needs. The main benefits of a personal loan are:

• Relatively quick
• Financial assitance
• No collateral required
• Minimum documentation
• Flexible loan amount

Limitations of a Personal loan

There are also certain limitations for a personal loan apart from the benefits. The limitations of the personal loan are:

• High interest rates
• Fees and penalties
• May lead to credit damage
• Unnecessary debt
• Extra credit burden

Where to get a Personal loan?

The first point to look for personal loans is perhaps your current bank or credit union. Your lender can advise you on what types of personal loans may be possible and the financing options for which you’re most likely to qualify.

Personal loans can also be found online. Numerous lenders offer personal loans online. You can apply electronically, get a decision in minutes and, in some cases, get funding in as little as 24 to 48 hours after loan approval.

When comparing personal loans online or off, pay close attention to the details. Specifically, consider the following:

• Interest rate
• Fees
• Repayment terms
• Borrowing limits (minimum and maximum)
• Collateral requirements

Conclusion

Taking a personal loan acts as a financial support to the individual. But, It is important to note that the repayment of this loan does not fall as a heavy burden on the hands of the borrower.

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