What is a Personal Loan and its Benefits?

Published On Apr/28/2023

A personal loan can be beneficial for meeting various financial requirements. For instance, you might require funds to pay for medical treatment or make an expensive purchase.

During these times, rather than running from pillar to post asking for funds from friends and family, one can apply for a personal loan from a Non-Banking Financial Company or a bank. A personal loan may be the best way one can quickly get hold of some funds in order to fulfil an emergency financial requirement.

Let us find out what a personal loan is and its benefits.

What is a personal loan?

A personal loan is an amount of money that you can borrow from a lender when you are in a cash crunch or need urgent financial assistance.

How does a personal loan work?

When you apply for a personal loan and submit relevant documents, the lender evaluates your credit history, income, etc. Based on these factors, the lender approves your loan.

The lender disburses the loan amount to you in a short time, and then you can start paying the loan back in Equated Monthly Instalments (EMIs) at the rate of interest decided when you signed up for the loan.

Benefits of a personal loan

A personal loan offers benefits in the form of convenience. Let us look at them in detail.

A personal loan does not require any collateral

This is one of the biggest advantages of a personal loan. A personal loan is an unsecured loan, which means the lender does not ask you for collateral.

Other loans like a gold loan require you to furnish collateral in order to secure a loan, wherein you must hand over your assets to the lender for the duration of the loan. A personal loan requires no such thing. You can simply apply for a personal loan, and the lender gauges your creditworthiness based on your credit rating and loan repayment history.

There is no end-use limitation for personal loans

If you take a home loan or a car loan, then the loan amount disbursed can only be used to purchase a home or a car, respectively. That means the lender dictates the end use of the loan.

But in case of a personal loan, you have complete freedom to use the loan amount for any expense you wish, as long as it is legal. Thus, you can use the personal loan amount for any of the following and much more:

  • Pay hospital or medical treatment fees

  • Pay childrens education fees

  • Plan a vacation

  • Make a planned purchase, like a television or a mobile phone

  • Pay for wedding expenses

  • Pay for house renovation or repairs

Personal loan disbursal is very quick

Since a personal loan does not require collateral, it can be disbursed very quickly if all your documents are in order and you have a good credit rating.

Lenders have no hesitancy in giving out personal loans to creditworthy applicants. Hence, the loan disbursement in such scenarios can be done in less than 72 hours. This time may even be lesser if you are an existing customer with the lender.

There is minimal documentation for personal loans

A personal loan is approved based on the creditworthiness of the applicant. Hence, the only document required apart from KYC documents may be proof of income, bank statements, and Income Tax Returns.

You can even apply for personal loans online by uploading the relevant documents. Thus, a personal loan has a minimal documentation requirement, which makes it a highly convenient and quick loan.

Flexible Repayment Terms

A personal loan has a flexible repayment schedule. You can repay your personal loan EMI over a tenure that you find comfortable. Most lenders offer a maximum tenure of 5 years and a minimum tenure of 12 months for a personal loan.

This also depends on the loan amount that you have opted for. A longer tenure also results in a lesser EMI amount with a rise in, total interest.. A shorter tenure, on the other hand, means your EMIs will be higher, but the total interest paid will be significantly lower.

Thus, it is quite evident that a personal loan may be your best bet whenever you need money quickly. Personal loan interest rates offered by lenders today are also attractive, and you can get an excellent deal onyour loan.