Last week, Samira needed immediate cash as one of her family member was hospitalised. She was reluctant to ask for help from her friends and searching online for various financing options. She came across Personal Loan Facility, but the thought of lengthy documentation process was a strong deterring factor. Like Samira do you too resist credit facilities? Or you feel you do not earn enough to apply for a loan? Then you must read this article presented by MoneyMindz, India’s First On-call Financial Advisory Portal as this article will give you a brief about the significance of ‘Personal Loan.’ We will debunk your myths about personal loans and will unfold the real picture about personal loan under one roof.
What is a personal loan?
Personal Loan is unsecured loan advanced on the basis of your credit history and ability to re-pay the same from your personal income. It is also called as consumer loan. It is a multi-purpose loan which you can borrow to meet your immediate needs.
Do you wish to renovate your house? Or fix a car or need some funds for a holiday or your wedding? Then Personal Loan would be a reliable instrument to source some funds.
As personal is an unsecured loan, interest rate on personal loan is generally higher than home loan or car loan. Hence, you need to know your finances well in advance before you opt for one.
Who is eligible for a personal loan?
The eligibility criteria and their specific details may differ from banks to bank based on their perception of the risks associated with given out personal loans. However, nearly all banks divide the potential borrowers into three categories:
- Salaried individuals
- Self employed individuals
- Self employed professionals
Other factors which are taken into consideration are, age, residence, work experience, repayment capacity, past obligations and place of work.
Benefits Of Personal Loan:
Here are few benefits of personal loan:
- No security or collateral is required
Being an unsecured loan, there is no collateral of any asset required. It is offered on the basis of your credit history and repayment capacity.
- Less documentation
Many abhor applying for personal loans due to lengthy documentation process. But personal loans are approved with minimum documentation.
- Quick loan disbursement
These days it takes few hours for loan disbursement. If banks feel that you have the capacity to re-pay the loan within the stipulated time and need loan for genuine reason then getting a personal loan disbursement is easy.
- Fixed rate of interest over the tenure
Rate of interest on personal loan is fixed at the start of the tenure and remains constant throughout. So, it becomes easy for loan applicants to plan for their future EMIs well in advance.
- Flexible loan tenure of around 1-5 years
Personal loans offer loan tenure ranging from between 1 year to 5 years. So you have flexibility to choose your tenure as per your re-payment plan. Best is to opt for a lower tenure loan and save on the interest outlays.
- Easy EMI facility is available
Equated Monthly Instalments make the idea of loan simpler. Personal loans too offer easy EMI facilities and help you re-pay the principal amount over the tenure.
- It is a multipurpose loan
Unlike home loan or car loan, personal loans can be availed to meet almost all aspirations.
What kinds of interest rates are offered on personal loans?
Personal loans are offered in:
Of the three, flat rates turn out to be the most expensive since the other two are calculated on a reducing balance basis.
What is the average interest rate for personal loans?
The interest rate for a personal loan is decided on the basis of your credit repayment capability and history. Depending on this, interest rates could be anywhere between 14% and 25%, depending on the financial institution.
What documents are required for personal loans?
Personal loans require the least number of documents, making it the fastest to be approved. Typically, financial institutions would require proof of identity, residence, income and also 3 to 6 months of your bank statements. Some banks also require guarantors and the same set of their documents.
How is a personal loan repaid? Is prepayment of a loan possible?
Normally, personal loans are offered between 1 to 5 years. The loan is repaid with Equal Monthly Instalments (EMIs). Prepayment is possible but will generally carry a significant prepayment charge.
MoneyMindz advices that before making any impulsive purchases, evaluate whether your current finances permit such purchases. Splurging with the credit facilities can eventually land you in a debt-trap. Remember, personal loans are one of the costliest forms of credit facility. Hence, act prudently and avoid opting for loans for almost every purchase.
For more information visit www.moneymindz.com or give a missed call to 022-62116588.