Personal Loans in India are now gaining popularity as the interest rates keep fluctuating. These unsecured loans can be a way to avail funds for emergency situations, or for extra cash flow. Here are some reasons why a Personal Loan is helpful.
Personal Loans—quick and easy
With banks and other lending institutions now offering loans online, signing up for one is quick and painless. Besides this, there are many financial marketplace websites that offer numerous services to borrowers to help them find the best personal loan deal.
Minimal paperwork and formalities
Unlike secured loans, a personal loan does not require too much documentation. You’ll be asked for the basic ‘Know Your Customer (KYC)’ documents like identification, age, address and income proofs. However, you must be salaried or self-employed individual to avail such loans.
Save on commute, energy, and effort
You need not keep visiting the bank too often if you apply for a personal loan online. However, if there is a need for documents, banks might send their representatives to your house and collect the necessary papers. You can apply online and relax at home, as the application processing transparency is high.
No questions asked
Except for the basic proofs and documents, the lender is not going to bother you with questions about how you are going to spend the money, or why you need the funds. You can spend the sanctioned amount on a wedding, vacation, to carry out home repairs, to buy a vehicle, or fund medical emergencies. Unlike house or car loans, the lender is not bothered about what you spend the money on.
Personal Loan- points to remember
Personal loans involve some features that you need to take note of before enrolling.
Higher rate of interest
You should keep in mind that you won’t be offering any collateral for this loan. So, to offset their loss, banks charge a higher rate of interest. Secured loans like loans against gold or property cost much less in terms of interest. If you need funds and possess an asset to pledge, consider the option of a secured loan before an unsecured one as the interest rates will be comparatively lower. However, an unsecured loan frees you of the need to tie down your assets to a debt. If you can afford the higher interest rate, an unsecured Personal Loan is a great option to solve a fund crisis.
Your credit rating
Banks check your credit record from the information acquired from agencies like CIBIL. These agencies follow your footprint on previous loans and your credit card usage. If you’ve cleared previous loans on time and have never defaulted on a loan or paid your credit card bills on time, your credit score will be superior. This will reassure the lender of your commitment to clear your debts and your capability to keep up with EMI payments. In this manner, your chances of getting loan approval go up.
Fees and charges
Loans come with additional costs besides interest. These include processing fees, late payment fees, prepayment charges, and foreclosure charges. When you are negotiating with the bank for the loan, clearly understand the various costs involved. Study the loan papers carefully and understand all the clauses before signing up for the loan.
If you have excellent financial stability, share an exceptional relationship with the bank, or possess stellar credit rating, negotiating for better terms like lower interest rate and nil prepayment charges is always possible.
Borrowing more than you need
Just because the lender offers you a high amount, doesn’t mean you should jump in without giving a thought to the repayment. You should use an EMI calculator at the lender’s or third party website and calculate personal loan EMI you can spare each month.
If the EMI is too high for your monthly budget and you default in any case, you will incur late payment penalties which will affect your credit rating.
Keep the tenure as short as possible
The longer the tenure, the higher the interest amount you’ll have to pay. So, choose the highest EMI that you will be comfortable with, and keep the loan tenure lower. If the Personal Loan comes with prepayment facilities, take advantage of it and use surplus funds to make lump payments to ease your burden.
Poor credit rating? You still have options
With the services that financial marketplace websites are offering, you can find ways to get a Personal Loan even if you do not have a poor credit score. If you have never taken a loan before or never possessed a credit card, it is difficult to assess your creditworthiness.
If you’ve defaulted on credit card or loan payments, you will have a low credit score. Both these situations greatly affect your loan approval chances.
Online Personal Loan facility has made it easier for borrowers to apply and get quick approvals. Having said that, you should use this facility only when you need the cash and can afford the EMIs. Personal Loans are a great instrument for raising funds quickly when the situation warrants. But do go through the loan details so that you don’t burden yourself with financial instability.