Most loans are named in a way that they become self-explanatory. What they help in finance is usually right in the name – car loans are for a new ride, home loans for the mortgages when one purchases a home and student loans to fund higher education. But other loans don’t speak for their name. An easy personal loan is one such example. People often get confused about how personal loans work and who should use these loans and when?
Here is a guide that will help in understanding the nuances of a personal loan and how one can benefit from it. Take a look!
What Is a Personal Loan?
In simple words, a personal loan is an unsecured loan. By saying unsecured, we mean that it is not backed by any asset and can be taken for just about anything. Whether one wants to buy jewellery, a new home, go on a vacation or make that dream of lavish wedding possible, a personal loan is great for one and all. Therefore, they are usually given for a short-term (06 to 36 months) and mostly require less documentation. All these largely depend on the borrower’s needs as well as the lender’s policies.
The borrower is expected to make a fixed monthly payment for the tenure of the loan. With a personal loan, the borrower knows the exact borrowed amount, the monthly payout and when the debt will be paid with full interest. Obtaining a personal loan is simple, easy and fast.
So, aren’t personal loans easy to understand?
How Does One Qualify to Get a Personal Loan?
Though it is easy to obtain a personal loan, there indeed are a few parameters that one needs to qualify to be eligible for a credit.
Credit Score – Most financial institutions check the credit score of the borrower before stamping yes on the loan papers. A good credit score sometimes also helps in obtaining a personal loan with a low-interest rate.
Repay Proof – Financial institutions usually ask for evidence of employment or bank statements as a proof of ability to repay.
Debt-to-income ratio – Lenders usually hesitate to lend money to those with a higher debt-to-income ratio. The ratio is calculated by dividing the total monthly recurring debt with the borrower’s monthly salary.
How to Pick Best Personal Loan?
When one is seeking a lender, many things need to be kept in consideration. These include:
- Low-interest rate and little or no processing fees
- Compare several lenders to grab the best deal
- Know the total cost (including interest) of the loan
- Budget the loan to see if repaying it will be smooth and won’t impact the present lifestyle
- Read the terms and conditions thoroughly for an informed decision
Documents Required to Avail a Personal Loan
Many financial institutions have a policy of zero documentation for sanction and offer online approval within 30 minutes. However, there indeed are a few documents required to authenticate the borrower.
- PAN Card
- Aadhar Card or Number
- Bank Statements
After all the mandatory documents are handed over to the lender, the application is processed in no time.
Benefits of Personal Loans
There are many instances in life when a personal loan can improve anyone’s financial viability and make them debt free or help them get what they want. The hassle-free application process, flexible tenure and quick disbursal offered by financial institutions like ABFL Direct on personal loans make it easy for anyone to:
- Help with emergencies
- Ease out the financial burden by consolidating multiple bills into one
- Predict the monthly payment while paying a fixed interest rate
There is no denial in the fact that personal loans are a cheaper financing option than most credit cards. If one can secure a good interest rate, personal loans are an excellent way to consolidate any debt. The best part is that personal loans often come with a flexible tenure and require no collateral. However, one should borrow money from a lender only when they genuinely need it and will be able to pay it off in a set time.