When it comes to borrowing money, consumers have a variety of choices, ranging from personal loans, credit cards to home equity loans. If you are in need of immediate cash and have a decent credit score, most banks and NBFCs will be willing to offer you a Personal Loan.
A personal loan is any unsecured loan that a bank or NBFC gives you. This means that it’s not guaranteed with a house, car, or other collateral. Because of this the interest rates are higher than a secured loan, but not as high as credit card borrowing. For example, if you had to choose between a secured loan, a personal loan, or a credit card cash advance, the personal loan would have the middle interest rate, with a secured loan being the lowest and a credit card cash advance being the highest.
The key reason to choose a personal loan over a credit card loan is that you’ll pay less interest and have longer tenor to pay it back. On the other hand, the reason to choose a personal loan over a secured loan is that you aren’t using any personal security for the loan. However, you will pay more interest and not have as long to pay it back.
Personal loans are used for various purposes, such as meeting family emergencies, purchasing home furnishings or consolidating other debts and even funding your vacations.. These loans are generally short term. Most personal loans range from Rs,100000 to Rs,500000 and even more, the repayment period of a Personal Loan is fixed. The tenure varies from lender to lender and the length of the repayment period will dictate the rate of interest that you’ll be offered.
Personal Loan eligibility varies from one lender to another and is based on your income, credit score, age, and financial stability. You also need to possess important documents like KYC Documents, salary slips, Bank Statements and Income Tax return forms.
Personal loans get approved within minutes and once sanctioned; the money gets credited to your account in 3-4 days. All you need is a good credit history and an ability to repay your loan. As a rule of thumb, the higher your income and credit score, the more you can borrow. A few banks and NBFC’s also have a limit on the amount of money you can borrow through a personal loan.
Why Personal Loans Are Good:
- If you have good credit score, you will usually be able to borrow more than you could with a credit card.
- Interest rates are usually (but not always) fixed for personal loans, making it easier to calculate the total cost of your loan.
- Most of the time repayments will be set to a fixed amount (EMI), meaning that you can budget for the same payment every month.
- You are able to choose how long you would like the loan to be, depending on the lender and their criteria. This means you can stretch it out over a longer period of time to have a lower monthly payment (though that will sometimes mean you are paying more interest over time).
- Other personal debts can be consolidated into one loan with a personal loan, meaning one low payment can cover everything.