Life can sometimes throw a curveball. Be it through an unforeseen expense or an intended plan that requires funds. For instance, your car breaks down or you need funds for a planned vacation, you don't need to put pressure on your savings. At times like this, understanding how to obtain a Personal Loan can help you engage it as a productive tool in managing your finances. Let’s look at how a Personal Loan can fix your needs without breaking the bank.
What is a Personal Loan?
It is an unsecured loan provided by banks and non-banking financial companies (NBFCs) for personal needs of a borrower. No collateral means no security to the lender against the loaned amount. Hence, the lender is at a higher risk of default. To mitigate this risk, Personal Loan interest rates are higher than secured loans like home loan, gold loan and car loan. However, the interest rate is lower than a credit card. So, instead of swiping a credit card for a big-ticket purchase and converting it to instalments, opt for a Personal Loan.
Reasons to Take a Personal Loan
One important benefit of taking a Personal Loan is the flexibility to use the funds for any purpose at your will without having to declare to the bank. Thus, there can be various reasons to take a
Personal Loan, such as:
▪ Consolidate or transfer previous high-interest debt
▪ Pay off credit cards outstanding payment
▪ Revamp your home interiors or construct a new floor
▪ Make down-payment for new house
▪ Fund your child’s education
▪ Go on a dream vacation
▪ Pay for a grand wedding
Pay for a medical emergency
▪ Finance your new business
▪ Buy a big-ticket item like jewellery or an appliance
Eligibility for Personal Loan
To be eligible to apply for a Personal Loan, you must primarily be a citizen of India. Your age should be in the range of 25 to 58 years. You must also be an employee of public or private sector or a multi-national company. Generally, the minimum salary requirement varies as per your city of residence since cost of living varies accordingly.
Why Take a Personal Loan?
- Minimal Documentation
- Once you ensure you meet the eligibility criteria, you need to submit a basic set of documents to apply for a Personal Loan. You will need proofs of age, identity and address along with salary slips, bank statements and your employee ID.
- Want the complete list of documents for Personal Loan?
- Wide Tenor Range
- You can choose to repay your loan within a period ranging from 12 months to 60 months
- Large Loan Amount
- Some lenders let you borrow a substantial amount as Personal Loan. For instance, you can avail a Personal Loan upto Rs. 25 lakh from Bajaj Finserv.
- No Collateral Required
- Being an unsecured loan, you do not have to worry about providing a security when applying for a Personal Loan.
- Swift Approval and Disbursal
- Once you have furnished all the required documents with correct information, you can expect a quick approval from the lender. Some lenders disburse the loan amount as early as 24 hours.
- Flexibility with Flexi Personal Loan
- This is a sub-type of Personal Loan that allows you to withdraw funds from your account as and when you need. The interest is charged only on the utilized amount, thus reducing your EMI. So, if you are eligible, you can avail a flexi-loan to have access to funds, always.
Things to remember
Loans can easily become a burden if not planned well. If you want the Personal Loan to be more of an advantage and less of a liability, here are a few things to consider:
Fix a Figure
Don't opt for a Personal Loan only because you are eligible or it’s pre-approved by a lender. If you are in dire need, calculate the amount you require and avail loan only for that amount.
Compare Interest Rates and EMIs
Various lenders offer different interest rates on Personal Loans. Make sure you check with multiple lenders before finalizing. Also, use an online EMI calculator to determine your monthly outgo towards repayment of the loan.
Check your Credit Score
Before applying for Personal Loan, know your CIBIL score. A poor score can attract higher interest rate or loan rejection. In that case, you will have to work on improving your credit score.
Look for Hidden Charges
Lenders charge a processing fee and a foreclosure fee which can add-up to your cost of borrowing. Enquire about these charges explicitly and compare with other lenders.
When a financial emergency strikes, ensure you do not make a hasty decision in choosing a lender. You can conduct a detailed study of lenders and their offers beforehand. Alternatively, you can take a flexi Personal Loan and be prepared.