What is Personal Loan?
A personal loan is a type of loan that banks or other financial institutions provide without any collateral or security and offer with minimal documentation. Applicants can use the personal loan for any legitimate financial need. Like all other plans, borrowers must pay back this loan as per the agreed terms with the bank. Personal works in the same manner as all other loans. Applicants can apply for the loan and submit the required documents. Post this, the bank checks the creditworthiness of the applicant and then makes the loan offer.
After accepting the offer, the funds are transferred to the applicant’s bank account. The borrower would need to make monthly payments to the bank or other financial institutions. Monthly payments depend on the loan amount, tenure, and interest rate. The interest rate will also depend on the credit history, loan tenure, occupation, income, etc. The interest rates of personal loans are fixed and not floating here.
Personal is an unsecured loan since the borrower is not required to give anything as collateral. The processing time of a personal loan is very quick. In most cases, funds are released to the applicant on the very same day, and hence increasing number of people are applying for the same. In a personal loan, the lender allows the borrower to choose the loan tenure.
Usually, the period ranges from one to five years. So individuals can select the loan term based on their repayment capacity. One should always prefer to go for a shorter period to save on the interest payment. If one closes the loan quickly, the interest charged can also be less. There is no over-the-limit on the personal loan. The maximum amount depends on the income level, occupation, and lender’ evaluation of your loan application.
Lenders generally approve the loan, keeping in mind that EMI calculated should not be more than 40-50% of the applicant’s monthly income. They also keep in mind if the applicant has any other dues. There is also the option of co-applicant in the personal loan. Here the lender will evaluate both applicants before granting the loan.
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