Personal loans are the easiest way to fulfil sudden financial requirements without paying excess interest. For events like shopping for your wedding to urgent home repairs - a personal loan is beneficial in various scenarios.
Personal loans have several benefits and are easier to get, provided you have a healthy financial state. But like any other loan or debt product, it involves interest rates and fees that affect the consumer's credit score and overall financial health.
So, customers should check the advantages, drawbacks and other vital information before applying for a loan. Here we have provided everything about personal loans and their benefits, drawbacks, types and more.
A personal loan is a type of instalment credit. It is a one-time cash payment to the borrower from the lender. The borrower pays back the amount and interest over a set period in monthly instalments. This is the lifetime of the loan, also known as the term. You can get personal loans from banks, credit unions and online traders. But you may ask yourself, "how much personal loan can I get?"
The primary benefit of personal loans is the comparatively lower interest rates. The interest rate varies from one organisation to another – on average, it is within 10-18%. It is a feasible choice for funding any personal expenses.
But the eligibility for a personal loan depends on the following factors:
It is crucial to do some research before seeking a personal loan. The terms and conditions and interest rates vary from one organisation to another. If you are wondering how much a personal loan can I get, it is best to check the eligibility at different banks. Here's how you can apply for the loan:
Once the loan gets approved, you need to enter your bank details to get the funds deposited in your account. The process gets completed within the same day as your application.
There are primarily two types of personal loans - secured and unsecured.
The secured personal loan requires some collateral, such as cash or physical assets, as a borrowing condition. If you default, the lender can keep or sell the assets to satisfy the debt. For an unsecured loan, you do not need collateral to borrow money. This option is considered riskier for the lender or the bank, and because of this, the interest rates are higher.
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A loan is a debt paid off in instalments at a fixed interest rate. Before applying for one, one must have some basic knowledge about loans, such as the different types, repayment methods, collateral, etc.
For instance, personal loans are one of the most popular loans that can be secured or unsecured. Only after thoroughly understanding the repayment process and the risks involved should one apply for a loan.
Personal loans have certain drawbacks, too, such as the interest rates being comparatively high for unsecured loans.
There are also fees and penalties if you miss a payment of even one instalment in time. Some banks also charge prepayment penalties which may affect your credit score.
The term limit for a personal loan can range between 12 months to 60 months usually.
Personal loans, although helpful for short-term needs, can come with their own risks like higher interest rates, higher fees, stricter penalties, and a risk to your credit score.
Salary slips and bank statements can serve as proof of income for salaried individuals, for others, ITR documents can serve as a proof.