Imagine you want to go on a vacation with your family………….. but are short on funds or you want to make a mid-ticket purchase but don’t have enough money in your hands. A number of people take personal loans these days to meet their unplanned or pre-planned expenses. Personal loans are some of the most easily available loans that can be disbursed in as less as a couple of days. In this article, we will discuss some of the most important points that everybody should know about personal loans.
What is a Personal Loan?
A personal loan is an unsecured loan that is availed to meet personal requirements. The best thing about this loan type is that the bank cares least about the purpose for which you take the loan. In case you want instant funds, you simply have to apply for a personal loan with a bank and the bank disburses the loan amount after analyzing a few factors such as your credit score, repayment capacity, employment history, etc.
Tenure of a Personal Loan
The time period of personal loans varies from six months to 60 months. Some short-term personal loans have a tenure of as less as 30 days. These loans get disbursed instantly but the lender charges a high interest rate on these accounts.
Eligibility criteria for a Personal Loan
The eligibility criteria vary from one lender to another. However, the lender considers your application based on the following criteria:
- Repayment capacity
- Credit score
- Additional loans and liabilities
- Residence, etc.
An applicant should have a steady income source irrespective of the type of job (salaried or self-employed). Some lenders also consider the organization/company in which the applicant is working.
Personal Loan Disbursal Amount
The loan disbursal amount depends primarily on the repayment capacity of the borrower and how much does he earn every month. Most banks sanction the loan amount for which the EMI is less than 50% of the monthly salary of the applicant.
In case of self-employed applicants, banks consider the latest profit statements while deciding the loan amount.
Why is a Personal Loan taken?
Personal loans are taken to meet personal financial needs. The bank does not monitor the usage of the fund as it does in case of home loans. These loans can be taken for a vacation, meet medical expenses, purchasing home appliances, marriage-related expenses, etc.
What happens if we default on a personal loan?
The bank generally tries to get the loan amount from you by intimation or with the help of recovery agents. In case the bank fails to do so, it marks the loan account as default which degrades your credit score substantially and it also reflects in your credit report. Banks refrain from providing loans to defaulters or those having a low credit score.
Pros of Personal Loans
- It gets disbursed instantly.
- There is no restriction on the manner in which the fund is used
- Tenure varies from 30 days to 60 months
- It can also be taken to improve the credit score in the long-term
- Documentation and paperwork is relatively less in personal loans than in home loans or car loans
- No collateral or security is required to take this loan
Cons of Personal Loans
- The lender charges a high interest rate on personal loans
- If you default, your credit score dips instantly
- The processing fees and charges are relatively higher for personal loans than secured loans
- The repayment capacity of the borrower is the most important criteria in this case and if you have a lower capacity, the loan amount sanctioned may not meet your requirements.
Is a personal loan recommended?
Best Personal loans are the easiest ways to get money in case of emergencies. You get enough time to repay the loan so it helps you to remove the burden at present and waive off the loan easily in the form of EMIs over a period of time. So, in case you have an urgent requirement, provide your documents and get the loan sanctioned quickly and never run out of funds when required.