In the last few years, personal loans have become immensely popular among the common folks to fund any kind of purchase. Before you take a personal loan, it is important to understand the term fully. Money that is borrowed from non-banking financial companies, banks, or from an online lender for meeting financial needs like a vacation, marriage, home renovation, and so on is known as a personal loan.
Personal loans are also known as “unsecured loans” and it does not require security or collateral and this is the primary reason that personal loan has a higher rate of interest than the home or car loan. It is a form of installment credit. The borrowers pay back the amount as well as the interest in monthly installment over a period of time referred to as its term. When it comes to taking a personal loan, you will find hundreds of easy and fast loan options, and it hardly takes 10minutes to apply online. The complete approval process might take up to a week and this depends on how quickly the lender receives the loan application and processes the documents.
How do personal loans work?
The working of personal loan is like the other loan only; you need to apply for the money that you need, submit required documents; the lender will verify your creditworthiness and will make an offer mentioning the amount which you are eligible for and will let you know about the rate of the interest which you will be charged. If you find the offer suitable for you and accept it, then the amount will be moved to the bank account given by you, and you can start using the money at once.
You have to repay the amount through equal monthly installments. The monthly installment amount is calculated based on the loan amount, rate of interest, and loan tenure. The process might appear easy but when you go to traditional lenders, you need to run around and lots of documentation needs to be done every time you require a loan.
But with online money lenders, taking a personal loan is completely hassle-free and paperless. A personal loan can be applied online and you get the money instantly to your bank account. The money will be transferred to your bank account within a span of 2hours. Any individual can apply for an instant online loan. You will experience a 100% paperless personal loan and you will get instant e-approval. The entire process of the loan application can be done right from your smartphone.
There are certain criteria while applying for a personal loan. When you apply for a personal loan, you should be between 25-60 years and must be employed in a full-time job for at least 2years, and must be a resident of the country you are residing in.
How to use a personal loan?
The greatest benefit of a personal loan is that one can use the amount in any manner one wishes to. The money can be used in meeting the wedding expenses, for going on a vacation, for home refurbishing, and for meeting the unanticipated medical emergency. Personal loans indeed come in handy no matter what the case might be.
Get to know about some facts before applying for a personal loan
A good credit score is a prerequisite for applying for a personal loan. When your credit score is good, most of the money lenders, be it banks or NBFCs would be keen on offering you a personal loan. It can be a daunting task indeed to find out the best option for availing a personal loan.
Before taking a personal loan, here are the 3 things you must know. Let’s take a look at the following three things:
1.Rate of interest
The interest that is charged to the borrower is the amount that you pay for taking the loan and the monthly installment amount can be changed substantially. Furthermore, the rate of interest is fixed during the complete loan period. So, you must devote adequate time and find the best rate which will subsequently save a lot of money.
It is the period that requires you to pay the principal amount as well as the interest. If the loan is taken for a shorter period, then it means the cost is lower but the EMI will be higher. Thus, you must look for the tenure range offered by various lenders and should opt for the one that gives a precise mix of EMI and tenure.
When you have the extra money in hand or receive a yearly bonus, the first thing you want to do is to repay the outstanding loan amount. But, the lender might charge a huge penalty for the early closure. Hence, you must check the charges applicable on pre-payment before you apply for a personal loan.
Types of personal loans
There are different types of personal loans and correspondingly various ways to classify them. Here are the most popular categories of personal loans:
- Short term and long term personal loan
The borrower can select from numerous term lengths. You can select a short-term loan from a few days to 1 year; the medium-term loan can be selected from 1-5years and up to a decade long-term can be selected.
- Secured versus unsecured personal loans
Secured loans need a specific asset like a house or car and the unsecured loans come without any collateral need.
- Various personal loan lenders
You may apply for a personal loan from banks, from private financial companies, from government bodies, and from online money lenders as well.
Steps for getting a personal loan
Here are the steps for getting a personal loan:
- Make sure to find out the best type of loan as per your requirement
- Check the eligibility criterion
- Prepare all documents required for getting the loan successfully and apply for the loan.
- Once the application is approved and you agree to the terms and conditions, the money is transferred to your bank account.
The bottom line
Getting a personal loan is now hassle-free. So, do not worry as to how to meet up the expenses when you can opt for a personal loan but make sure that you repay your loan amount on-time.