In today’s competitive era, everyone has a phase when they need emergency funds. In earlier days, people used to ask relatives for monetary support in an emergency or take payday loans within connections (with specific interest rates)
This format extinct years back and digitization have taught human beings about all other options available for quick monetary support. Credit cards have become one of the most convenient options to borrow money from the bank in case of emergency and repay it within45 days. Don’t worry! You also have the option to convert your amount into monthly interest.
However, people who own a credit card already know its limitations. Some of the limitations are:
Damage Credit:In case you missed any repayment date, you need to pay a high-interest rate. Moreover, this negligence has a direct impact on your credit score as well.
High-Interest Rates: Your payments are converted into monthly EMIs with high interest rates, which vary based on your APR.
Require High Cibil Score: You are only eligible to get a top-up loan on your credit card if you have a cibil score above 700.
So, these are the clear signs that you deserve an alternative to credit cards in case of emergency. And, that alternative is Personal Loan.
Yes, many of you are already familiar with personal loans, and many of you even own them. However, not everyone is aware of personal loans. Don’t worry! This article will provide you in-depth knowledge about the personal loan that includes:
The simplest definition of a personal loan is the amount you borrow from any bank for numerous personal expenses. In most cases, you have an emergency need that compels you to apply for a personal loan.
Personal loans are offered by banks, credit unions, and online lenders. The entire money you borrow under a personal loan requires timely repayment via monthly EMI. More often, you are also charged with the application charges added to the loan amount.
A personal loan is more like an installment debt that you take for emergency needs. The everyday situations when people take a personal loan include:
You should note that a personal loan is different from a car loan, student loan, home loan, or any other loan format.
The primary categorization of personal loans is secured loans and unsecured loans.
In a secured loan, collateral is required as the condition to borrow any amount. E.g., you can take a secured loan against your cash asset or any physical asset. In case of default, your personal assets are kept to compensate for the losses.
Another one is unsecured loans that are offered to the borrower without any value of the collateral. The unsecured loan is commonly offered based on borrowers qualifying factors. The common qualifying factors include work status, income source, current salary, previous loan status, etc.
A personal loan doesn't have any rocket science that requires a detailed explanation. Instead, it is a straightforward process that you can understand easily.
The first step is applying for a personal loan. Those with no credit card or other ongoing loan require applying to a lender/bank for the loan. The process of a personal loan starts with the application. Nowadays, this process has become 100% online.
Once your application for a personal loan is submitted, the lender/bank reviews it and makes the final decision. If you qualify for the approval process, the bank will share the terms and conditions (for loan). You can accept the T&Cs based on your comfort. If accepted, you can conclude the paperwork and take a personal loan in your account.
Direct bank deposit is the most common way of getting a personal loan. It means when everything is processed, your personal loan amount is crested in your bank account.
At last, you need to start repaying the loan amount via monthly EMI or lump sum.
For credit card holders or people with ongoing loans, credit score is updated every month. Banks directly approach you for the eligible personal loan and the entire procedure based on your credit score. More often, they provide you a personal loan with no physical documentation. The entire process is done within 2-3 hours, and you receive the amount within 24 hours.
There aren’t specific eligibility criteria to get a personal loan. However, multiple factors are taken into consideration when applying for a personal loan.
Monthly Income: This helps banks know how much you earn and how much you can repay as monthly EMIs.
Monthly Expenses: If you are applying for a personal loan, you must also check your monthly expenses. This is a prime factor that you must consider when applying for a particular loan amount.
Your Age: People between 20 to 60 years are only eligible to apply for a personal loan.
Your Residence: Only Indian residents are offered a personal loan. So, if you are living outside India, you aren't eligible to apply for the loan.
Your Cibil Score:Cibil score is the margin line above which you can easily get a personal loan. Often people with a cibil score above 700 can easily get a personal loan. Multiple websites are available that provide you cibil score.
Now comes the critical query that everyone asks when applying for a personal loan. Below are the benefits of getting a personal loan.
Instant Approval Process: Personal loans are credited to your account within 24 hours, which is the fastest process of getting an emergency fund. On contrary, a home loan takes 2-3 weeks, including a complete checkup followed by loan processing and final disbursement of the amount.
NOTE: As mentioned earlier, you need to maintain a credit score above 700 to get instant approval for a personal loan.
No Collateral Required: For every other loan (car loan, home loan, etc.), you are required to submit the collateral. However, personal loans don’t have such restrictions. You don’t need to pay any collateral for unsecured personal loans, and hence you get the amount instantly.
However, as the lenders don’t have any collateral, these types of loans have higher interest rates than other loan types.
Loan for Diverse Purposes: As the name suggests, a personal loan can be used for anything that you want. From home shifting to home renovation, you can get a personal loan for everything you want. In short, you are never asked for a loan. Instead, you make a request, and it's fulfilled; that’s it!
Build Good Credit Score: Not many people know that taking a loan and repaying it on time is one of the significant factors that help in improving the credit score. Whether you have an average credit score or are new to ‘credit’ terms, you should take a personal loan and repay it on time.
Paying your EMIs regularly will help you manage your expenses smartly alongside improving your credit score.
No Physical Documents Required: Existing credit card or loan owners have the advantage of skipping the documentation and get a personal loan in the shortest time frame. More often, personal loans are offered on behalf of your credit score. With telephonic communication, you can close the deal and get the desired amount right into your bank account.
Personal loans ranging from 50,000 to 5-Lakh are disbursed within 24 hours without asking for heavy documentation.
So, these are some prominent traits of getting a personal loan for whatsoever purpose.
Now comes the conclusion, i.e., whether you should take a personal loan or not. Interestingly, getting a personal loan in a critical situation isn't a drawback when you are falling short of funds.
A personal loan is the most convenient way to get emergency funds without requesting your relatives. Moreover, not everyone is capable of providing you the total amount that you require.
However, when you are applying for a personal loan, there are few pointers that you must keep in mind.
Take these points into consideration to ensure you connect with the right bank and get the best deal on a personal loan.
Different banks/lenders have different policies, interest rates, and charges, which must be considered when applying for a personal loan.