A personal loan is any loan that is lent to you for a personal purpose. Meaning that it’s not for buying a house, a car, studying abroad or any of the other common loan types. The reason for this is that personal loans come at a higher interest rate and are usually not secured against a collateral. Also, other types of loans, like a housing loan, are classified as tax-saving instruments, which a personal loan is not.

Benefits of taking a personal loan

The main purpose of a personal loan is to give you a surplus of cash when you’re running short. This can be in case of emergencies, any unplanned expenses, or a planned event like a wedding or vacation. While a specific type of personal loan comes with its own unique nuances, in general, the benefits of getting a personal loan are plenty. Some of them are listed below:

Convenience

Today, personal loans, like most other things, have pretty much moved online, and the application process is entirely paperless requiring actual documents only in cases where an additional verification step is mandated. Most banks offer you a per-approved loan amount that can be disbursed almost instantly.

For starters, you can try getting your loan on Fi Money. It takes just under 5 minutes to open an account on Fi Money and then check for loan eligibility on the app.

Quick disbursal

The quick approval, or in some cases pre-approved, process leads to near-instant sanctioning of the loan and its disbursal. With a good credit score, you can get quick amounts at your disposal with affordable interest rates, leading to easily manageable EMIs. When you get a loan on Fi Money, you can set up reminders so you never miss your EMI payments.

Serves a wide range of purposes

Like we’ve said above, a personal loan serves diverse needs in various forms. Some of the common ones include:

• Education: For higher studies in India or abroad. To cover tuition fees, boarding and lodging costs, living expenses, airfare, etc.

• Wedding: Covers costs of catering, venue and accommodation, wedding attire, and other related arrangements.

• Travel: Covers airfare, visa charges, travel insurance, hotel stay, and any specialised travel equipment or gear.

• Medical Emergency: Sometimes medical emergencies require an upfront payment in case of hospitalisations etc. Here, a loan should cover these initial expenses until insurance is later claimed.

• Home Renovation: Covers home improvement initiatives, remodelling, and repairs by covering material and labour costs.

• Consumer Durables: Covers costs of stuff like a new laptop, a DSLR camera, or a home appliance, a consumer durable / electronics loan can help you get these with ease.

Apart from these, you can use a personal loan to buy a used vehicle and even consolidate your debts by paying off your outstanding loans. This is also known as refinancing and can be a powerful financial tool. The benefits of refinancing a personal loan include:

• You can repay other individual loans (including credit card bills) and simply have one ongoing loan (ideally the one with the lowest interest) to manage and repay conveniently
• You can secure the new personal loan at a lower rate leading to an overall saving in terms of the interest rate
• You can preserve or even improve your credit score. Any delay in payment of outstanding dues can adversely affect your credit score. A poor score will lead to major issues in securing loans later on or at good rates.

Collateral-free

Another really incredible benefit of a personal loan is that it generally does not require collateral. In other words, you do not need to pledge any asset in lieu of receiving a loan. All you need to do is apply for the loan and provide the requisite documents. If your credit score is appropriate and you meet the eligibility criteria, a personal loan will be sanctioned to you.

However, this is one reason why personal loans are so expensive. If you do have a good credit score, you can instead look for lower interest loans.

Flexible repayment

Many lenders offer you the choice to choose your repayment tenure. Remember that this flexibility comes at an additional cost of a longer repayment period, which means you’ll be paying more interest on your principal amount.

Conclusion

Taking a personal loan has its pros and cons, but all things considered, it makes for great emergency capital. Personal loans are unsecured, meaning that there is no collateral like a house or an FD against it. This also means that the interest rates are much higher than other types of loans. You could consider taking a personal loan when you’re tight on funds. Most banks offer pre-approved loans after a quick credit score verification.

You can get an instant loan directly to your Savings Account through the Fi Money app. These are pre-approved personal loans made available to select users with good credit scores. On Fi, this process is 100% paperless, and the loans are provided at competitive interest rates — where each user remains in control with complete visibility of all details. Plus, you can avoid EMI late fees by setting up automatic in-app payments. Our partner bank, Federal Bank, assigns an eligible loan amount to each user (up to ₹5 lakh).

Frequently asked questions

1. What are 3 advantages of a personal loan?

A personal loan comes with far more than just three benefits. However, if you were to prioritise the benefits of getting a personal loan, then they are:

• Personal loans are easy to obtain through an online, paperless, hassle-free application process requiring minimal documentation or physical presence. They come with flexible repayment terms for added convenience.

• A personal loan requires no collateral and is disbursed almost instantly. This can be beneficial in case of a medical or any other form of emergency that can be repaid in easy-to-manage EMIs without causing a strain on your personal finances.

• A personal loan is very versatile since there are various types. You can choose the category of the personal loan based on your specific requirements.

2. What is a personal purpose loan?

A personal purpose loan is a type of loan that individuals can obtain for various personal needs, such as debt consolidation, home renovations, medical expenses, or travel. Unlike specific-purpose loans (like home or auto loans), personal purpose loans are unsecured, meaning they do not require collateral and are based on the borrower's creditworthiness and ability to repay. The borrower can use the funds at their discretion to fulfill their personal financial goals.

3. Can I use personal loans for any purpose?

Yes, you can generally use a personal loan for any purpose. Unlike specific-purpose loans, such as home or auto loans, personal loans are typically unsecured and do not require you to specify how you will use the funds. Borrowers have the flexibility to use the loan amount for various personal needs, such as debt consolidation, medical expenses, education, home improvements, travel, wedding expenses, or any other financial requirements they may have. It's essential to use the loan responsibly and ensure timely repayments to maintain a positive credit history and financial well-being.