Every individual may need some extra money at some point in their lives, especially when he or she wants to fulfil their personal demands and wants. During such a money crunch, individuals turn to banks for financial help in the form of personal loans to meet their desires. 

While credit cards come in handy at difficult times, personal loans have become the most favoured option when you have a specific need that requires a larger amount. Whether it’s paying for home refurbishment, planning a wedding,  buying your dream bike or going on a trip to your favourite destination, a personal loan takes care of everything. 

Now, let’s jump ahead to get a wider perspective about personal loans.

What is a Personal Loan?

A personal loan is nothing but financial aid offered by lending institutions to people who are in need of money to meet their urgent needs. A personal loan can be used for multiple purposes like planning travel. buying gadgets, funding for your education, medical expenses, splurging on weddings, and many other purposes. 

The borrower goes for a personal loan with a promise to pay back the lender along with fixed interest every month. The personal loan repayment period is pre-fixed as per the customer’s convenience. Similar to other kinds of loans, you have to pay the loan amount to the lender on an equated monthly instalment (EMI) basis. 

Now, before approving the personal loan, the lending authority checks certain details of the borrower like their profession, income earning, credit history, loans taken in the past, credit score, repayment ability, etc. The personal loan repayment period typically ranges between 12 months to 84 months. If you fail to repay the loan by the due date, you’ll be considered a defaulter. Eventually, this will affect your credit score as well.

Features of Personal Loans

Today, we have plenty of financial institutions offering personal loans. You can avail this loan either online or offline with simple documentation and verification. Typically there are two types of loans – secured loans and unsecured loans. Personal loans come in the later category. This means these loans don’t ask for any security or asset for collateral to approve the loan amount. The interest rates are high in unsecured personal loans when compared to secured loans. The benefit of this type of loan is that they are sanctioned and disbursed swiftly. 

Besides, for unsecured loans like personal loans, you require a good credit score compared to secured loans. 

How Do Personal Loans Work?

Since you have understood what are personal loans and their types, you should also know how they work. Well, the process of personal loans is pretty straightforward like several other loans. The first step you have to do is to figure out what’s your need and the urgency of taking a personal loan. Next, check your eligibility criteria and see whether you are meeting their terms and conditions. Anyone between the age of 21 to 60 years is eligible to get this loan. 

After meeting the criteria, you can contact your respective bank or apply online at numerous non-banking financial institutions or Lending/Fintech apps by submitting the necessary documents. Post-furnishing all the documents with the lender or e-verification, your credibility will be examined prior to approving the loan. Once everything is verified and approved, the lender sanctions the loan and transfers the amount to your account.  

Moreover, collateral-related documents are submitted to the lending authority only if it’s a secured personal loan. Otherwise, the borrower doesn’t need to submit any such documents to the lender. The loan repayment is done on an equated monthly instalment (EMI) basis. However, the rate of interest, the time period, and the loan amount varies from person to person.

Other than that, the documentation and paperwork are not as tedious as when compared to gold loans or home loans. Plus, the loan disbursement happens in no time, just after a few hours of approval or even instantly in the case of certain online lenders. Also, you have the leeway to choose the loan repayment period. So, you can opt for the ideal loan term by keeping your monthly earnings and savings in mind.   

Where Can You Get a Personal Loan?

Today, almost every financial company is providing personal loans to customers. Financial institutions that offer personal loans to the customer are commercial banks, credit unions, savings and loan associations, and peer-to-peer lending institutions. Additionally, you can also get instant personal loans online from various non-banking financial institutions that are usually faster and easier compared to others. 

Personal Loans Vs. Other Lending Options

Unlike before, there are myriad lending options in the evolving digital and financial space in the current era. Though personal loans are as good as any other loans, there are several other alternatives to this option as well. Some of the lending options other than personal loans are credit cards, Buy now pay later, peer-to-peer loans, personal line of credit, small business loans, etc. 

Impact On Your Credit Scores

One of the easiest ways to audit your ability to pay your debts is by checking your credit scores. This info gives the lenders the assessment of the credit and the default risk. Your credit scores are inspected in 2 ways – a hard inquiry and a soft inquiry. The former type of credit check is where the customer grants permission to the lender to verify the credit details as a process of a loan application. When it comes to the latter type of credit check, it doesn’t affect or impact your credit score.

Interest Rates and Other Fees

Generally, interest rates differ from loan to loan and lender to lender. There are fixed interest rates and variable interest rates. In some cases, a customer can opt for both or can change as per their requirements accordingly. The interest rates are usually a function of the loan amount, tenure of the loan, and the risk profile of the borrower. Long tenure loans mean that you pay interest for a longer time as compared to short tenure loans and hence it is recommended to not stretch loan repayment tenure unnecessarily. Some lenders also levy processing fees, and it ranges anywhere between 1% to 6% respectively. Also, some lenders provide an option of prepayment of the loan amount which can help you lower the interest you pay. Some lenders charge prepayment charges, so if you wish to have this flexibility of repayment, keep an eye on the prepayment clause.

If you think you are in need of a personal loan to fulfil your dream then download the Freecharge app for Personal loans at attractive Interest rates. The loan approval is Fast, Easy and 100% digital.  Go check it out.

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