Personal loan is a loan based on your credit history and income. Personal loans are also known as signature loans or unsecured loans because, often there is no collateral required to secure a personal loan.
Mostly, lenders approve personal loans by checking your creditworthiness.
Personal loans are easy to apply and qualify for compared to home and auto loans, making them useful for everything from minor home improvements to luxurious expenses. You have the option to buy anything, but it would be wise to borrow only what you need and only what improves your finances or make a significant impact in your life.
Also read: 6 Effective Ways to Build Credit from Scratch
Benefits of Personal Loans
Personal loans are a go-to financing option for people going for expensive purchases or financial crises. Some of which benefits are:
- Financing up to 25 lakhs: NBFCs and other financial institutions can offer financing up to 25 lakhs. This money can be utilized for renovation purposes, education, buying a vehicle, or any health expense.
- No Collateral: Personal loans are free of collateral. These are unsecured loans; hence you do not need to mortgage a property/ object to avail it.
- Quick and Safe: This kind of loan takes a maximum of 24 hours of disbursal from the institution, making it easily accessible.
- Short Tenures: The repayment tenure for this loan goes up to 60 months, and you also get the option to choose the tenure according to your will.
- Less Documentation: The documents required are KYC documents and bank statements. Employed people need to provide their salary slip and ID while the self-employed have to submit their business proof documents, income tax returns, and last year's turnover report.
- Simple Eligibility Criteria: Professional employees (citizens of India) between the age group 23 to 55 are eligible for this loan.
Also read: All You Need to Know About Debt
Uses of Personal Loans
There are many things you can get and do when opting for personal. Below are a few scenarios to it:
Consolidating Debt - If you have various loans at high interest rates, paying them down can be challenging. Consolidating debts by a personal loan allows you to roll them into a single debt. This combining of all debts gives you just a one-time payment to manage each month versus several.
Buying a Car - Like consolidating debt, you'd get the loan and then write a check from your account to pay the cost of the vehicle. Aside from cars, you could also use them to buy boats, motorcycles, trailers, or recreational vehicles.
Paying for a Wedding - If you do not have that kind of cash, a personal loan is an answer for you. For instance, you could use it to cover deposits, pay the caterers, photographers, purchase a wedding dress or tuxedo, cover travel costs for friends and family if you're having a destination wedding etc.
Taking a Vacation - Even if you're not getting married and have an expensive dream destination, you could use a personal loan. That includes your airfare or other travel costs to get there and back, hotel rooms or other accommodations, food, entertainment, and any additional costs that might crop up along the way.
Other Reasons - These are some of the most common reasons that you might decide to use a personal loan for:
- Cover home renovation
- Starting a small business
- Covering foreign education
- Tax bill
- Medical bills
- Expenses for a loved one
- Cover any legal fees
- Buy a home
- Pay off student loans
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