What Is Personal Loan? – Its Types, Features and Importance You Need to Know

Personal loans have grown in popularity in recent years. That’s because a significant number of people are using them to finance their needs. 

But, how do personal loans work, and what should you keep in mind before applying? You’ll find the solutions to all problems related to a personal loan here.

What is a Personal Loan?

A personal loan is an amount borrowed from a bank, NBFC, or an online lender. People use it to cover large, one-time expenses like a wedding, a big trip, or major house repairs.

Borrowers are not required to put up any security or collateral to get personal loans. Hence, they have higher interest rates than secured auto or home loans.

How Do Personal Loans Work?

Personal loans function like any other loan. When applying for the funds, you must submit the required documentation and check your credit. Then, the lender will provide an offer detailing the amount you borrow with the rate of interest.

If you decide to take up the offer, the funds will get deposited into your bank account. You will not have any restrictions on how to spend them.

The repayments will be made in the form of EMIs. The loan amount, interest rate, and payback duration determine the size of EMIs. 

To get a loan from a bank or lender, you must do a large amount of paperwork at different locations.

Generally, personal loans used to involve a lot of paperwork. But now, thanks to internet lenders like Piramal Finance, that is no longer the case. 

What Are the Types of Personal Loans?

• Wedding Loans

In India, weddings are major social events that cost money. Everyone wants their wedding day to be one they’ll never forget. Lenders are eager to lend money for a wedding so the couple can make it special. The soon-to-be-wed couple and either or both of their families may apply for a loan.

• Travel Loans

Travel loans help people take trips and pay for the costs when they return home. Holiday loans often include travel insurance to provide an extra layer of security.

• Home Renovation Loans

New property purchases are the only ones eligible for home loans. But what happens when you realize that your ageing home needs maintenance? 

The hefty expense of home improvements discourages many owners from making improvements. Home improvement loans can help you cover repair costs. 

• Pension Loans

Pension loans are only for retired people. Hence, the typical eligibility requirements are not applicable to this loan. In this kind of personal loan, lenders provide variable amounts. They give an amount that is many times the amount of the pension. This pension is what the borrower receives every month. 

To be eligible for a pension loan, you need documents showing that you get a pension. Pensioners can borrow money for any kind of expenditure. For example, medical bills and day-to-day living costs.

• Education Loan

This is one of the most common kinds of personal loans. In most cases, parents are the ones who apply for student loans. But, their children are the ones who end up being responsible for making the payments. You can also use this loan to pay your own or your child’s tuition expenses.

Features and Benefits of a Personal Loan

The features and advantages of a personal loan include the following:

• No Security or Collateral Needed

When applying for a personal loan, you won’t need to put up valuables like your home or vehicle as collateral. Loans are granted based on your creditworthiness. For example, your credit score, income, repayment history, employer’s reputation, etc. 

• Flexible

You can use personal loans for practically anything. For example, medical bills, a vacation, home improvement, or other debts.

• Adjustable Tenure

The terms of a personal loan may be as long as 60 months, with the average being 12 months.

• Minimal Documentation

With a personal loan, you do not need any collateral and can apply online or in person. To process loan applications, lenders need ID, income and residence proof.

• Speedy Disbursement

When a loan gets approved, banks disburse the funds instantly. If you have a loan offer that has already been pre-approved, the turnaround time might be as little as a few minutes.

• Flexible Borrowing Limits

A loan amount depends on a variety of factors. For example, the borrower’s credit history, income, age, occupation, and employer’s reputation. Personal loans are available from a range of Rs. 10,000 to Rs. 40 lakhs from a variety of lenders.

What Are Personal Loans Important For?

• Debt Consolidation

You can use low-interest personal loans to repay high-interest credit card debt. With less money going towards interest, you can pay off your debt faster.

• Home Repairs

Using your loan to fund home repairs is acceptable as you are reinvesting into the property. Along with that, if you don’t need a large amount of cash, you might be able to qualify for a personal advance.

• Big Purchases

If you need to make a large or costly buy but don’t have the cash on hand, a personal loan may be able to assist.

• Personal Investments

Personal loans can help you open a business or study abroad, but every lender has different needs. Most personal loan providers restrict their use to paying for school expenses.

• Emergencies

In an emergency, a personal loan may be your only option. You may need a personal loan if you need money quickly to cover expensive medical expenses.

Conclusion

A personal loan can be helpful in many situations. For instance, many individuals would need a loan to make a large purchase. Take a personal loan with caution and ensure you know what you’re getting into. Also, timely repay the loan according to the terms set out in the agreement with the lender. Talk to a reliable bank about your possibilities.

Are you in instant need of funds? Apply for a personal loan with Piramal Finance and get your loan disbursed quickly!