A personal loan is any type of financing that is used to meet your financial requirements. When you apply for a personal loan on an online loan app or website of a lender, you are requesting to borrow a certain amount of money from a financial institution like a bank or credit union.
An instant cash loan is a multi-purpose loan that can be used to address diverse needs. A personal loan can be used to pay for education, medical expenses, buy high-end items, or pay off debt. There are many perks of availing a personal loan; however, it does have some limitations too.
You must know both the pros and cons before applying for a personal loan. Read on to get an in-depth understanding of the basics of personal loans.
What Is a Personal Loan?
A personal loan is an advance extender by a lender in return of a regular monthly payment over a predetermined length of time. The lender charges an interest rate on the principal, along with a bunch of fees. In contrast to credit cards, personal loans provide borrowers with a one-time cash payment. Then, throughout the loan’s term, borrowers make consistent, monthly payments to repay that amount plus interest.
Because most personal loans are unsecured, you won’t need to put up any security to get the money. This makes personal loans high-risk tools for the lender. This is why; lenders often levy a high interest rate on personal loans as compared to secured loans like a home loan, car loan or loan against gold jewellery.
Important Terms of a Personal loan
Here are a few important terms that you should keep in mind before applying for an instant cash loan.
- Principal: This refers to the amount of loan you have borrowed from the lender. Suppose you have borrowed ₹50,000 then your principal amount is ₹50,000.
- Interest Rate: When you apply for a loan you will be charged interest on your loan. The interest rate may vary depending on numerous factors.
- Tenure: This is the time within which you have to pay back your loan along with the interest. Personal loans often have adjustable terms between 6 and 60 months. If you fail to repay your loan on time you may have to pay a fine for that.
- EMI (Equated Monthly Instalments): EMI is the amount that you have to pay to the lender every month. This EMI is calculated based on the principal, rate of interest and the tenure of the loan.
- Secured and unsecured Loans: Secured loans need you to submit collateral or guarantee against the loan amount. Unsecured loans, however, do not need any security, and the lender extends these loans in good faith based on your credit rating and income.
How to Know if You Are Eligible for a Personal Loan or Not?
To know your eligibility for the personal loan refer to the eligibility criteria given below:
- You must be a citizen of India
- Both salaried and self-employed individuals are eligible for this loan.
- The minimum age limit is 21, and the maximum is 58.
- Both salaried and self-employed should make at least ₹15,000 per month.
What Is the List of Necessary Documents for a Personal Loan?
The list of the necessary documents for a personal loan is as follows:
- Passport size photo.
- Driving License or Aadhaar Card Number.
- Bank statements over the last six months as evidence of income
- PAN Card number
- Aadhaar or a smart card driver’s license are examples of address proof (anyone)
- Salary slip, ITR, and business account statements.
How to Apply for a Personal Loan?
You can apply for a personal loan via an online loan app or through the lender’s website. Follow the steps given below to apply for a personal loan:
- Download the loan app or visit the lender’s website.
- Check your eligibility for the loan
- Fill out the application form
- Choose your loan amount and loan tenure
- Submit all the necessary documents
- Wait for the lender to verify your documents
- Check your loan approval status.
- Wait for disbursal.
- During the loan term, your lender will presumably report information about your account behaviour to the credit agencies. Making on-time payments will help you build a strong credit history.
A personal loan is a very simple, convenient and reliable financing tool that can help you meet your financial obligations. Now that you know the basics of a personal loan, make sure to do some research and keep a lender of your choice sorted. This will help you in times of sudden emergencies when you would need an instant cash loan. You can also download the best online loan app on your mobile and be ready for emergencies.