A personal loan is a loan to meet your larger expenses. The significant rise in the ongoing popularity of personal loans is because they are unsecured. An unsecured loan is a loan that requires no collateral. Also, the processing time of a personal loan is much higher than any other loan.
With services becoming online, with a personal loan, you can get the money in under 48 hours. In this article, we will talk about what is a personal loan, its benefits, and everything else related to a personal loan.
What is a Personal Loan?
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A personal loan is an unsecured loan from any bank or financial institution. It is based on criteria such as employment history, income, repayment capacity, profession, and credit score history. A personal loan is also known as a consumer loan, and it is a multipurpose loan that can meet your immediate needs.
There are times such as a medical emergency, or maybe a wedding, or even going abroad for higher studies; these are perfect times for you to avail a personal loan.
Avail a personal loan today with IIFL Finance. Visit their website to know more about personal loan and how to calculate everything for the same.
Let’s look at a few benefits of a personal loan.
Benefits of a Personal Loan
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Quick approval
A personal loan can be approved within 24 hours in most cases. Other loans might take a longer period, but with a good CIBIL score or credit score, you can easily apply for and avail a personal loan.
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No collateral
One of the best reasons that makes personal loans highly desirable is that they do not require the borrower to provide any collateral. This is what unsecured loans are and how they work.
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Versatile uses
A personal loan can be for various uses, from buying a new phone to going abroad for a vacation. All your needs can be fulfilled with an easy instant personal loan. The flexibility that a personal loan gives is beyond anything.
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Helps build a credit score
If you have a low credit score, availing a personal loan and repaying it on time will improve your credit score, which would help you easily avail loans in the future. A good credit score is an indicator of the borrower’s creditworthiness.
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Minimal documentation
A personal loan does not require you to submit hundreds of documents. The documentation requirements are minimal.
Reasons to Avail of a Personal Loan
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There are multiple reasons why you can avail of a personal loan.
- That long overdue vacation;
- Medical emergency;
- Education;
- Wedding;
- Home renovation;
- Buying something for yourself
Factors to Consider Before Availing a Personal Loan
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There are a few factors that you should keep in mind before availing a personal loan.
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Maintain a good credit score
A good credit or CIBIL score ensures you go through a hassle-free process. A credit score ranges between 300-900, and any score above 750 is considered ideal. A low credit score, say around 300 shows your poor debt management and may result in your application for a personal loan getting rejected.
Simply pay your dues on time and maintain a good credit score.
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Compare interest rates
Before you apply for a personal loan, make sure to compare the rate of interest of various banks and financial institutions and choose the one that best suits your needs
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Evaluate your repayment ability/capacity
If you evaluate your repayment capacity or ability well, you can calculate your EMI accordingly and see if you can manage your monthly expenses around that EMI. This gives you a fair idea, and any unpredictable expenses can be adjusted.
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Look for personal loan offers.
It is good to keep track of any offers, but at the same time, avoid falling trap to offers that might make the personal loan more expensive for you. For instance, if a floating interest rate is applied, it might be the case that the current interest rate is less, but since it’s floating, it might increase in the future; and you end up burning a hole in your pocket.
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Evaluate all costs
When borrowing a loan, you must consider all costs, like processing fees, prepayment, and late fees. It will help you manage your finances better and plan other expenses around these.
Factors affecting Eligibility for Availing a Personal Loan
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Various factors affect the eligibility for a personal loan
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Credit score or CIBIL score
A good credit score of 750 and above is considered tremendous and shows financial discipline and less chance of you being a defaulter. Hence, banks and NBFC prefer to lend personal loans to such people.
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Employment and reputation
If you’re a salaried employee, it becomes easy to avail a personal loan. A work experience of at least two years with a 6-month experience with the current organization if salaried employment and a business should run for at least two years before you can avail a personal loan.
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Minimum income
Higher-income is an indication of a high repayment capacity. Hence, the minimum salary requirement is around Rs.15,000, and a salary of Rs.25,000 is preferred.
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Repayment capacity
Banks and NBFCs prefer giving personal loans to those whose EMI obligations do not exceed 50% of their monthly income. This ensures they do not have a lot of obligations, and loan repayment can be easily made.
Conclusion
We hope that you are well versed in how personal loans work, and if you wish to avail a personal loan in the future, what eligibility criteria must you fulfill? If you know the requirements well beforehand, it becomes easier. For instance, you can start building your credit score before obtaining a personal loan.
Additionally, you can avoid multiple job switches; stability with an organization for a more extended period reflects career stability to the banks and NBFCs. So keep all these factors in mind before you avail a personal loan.
