Today, most people prefer to take personal loans for their purchases due to the EMI flexibility. The borrowers are also willing to convert their purchases into EMI, which they must pay monthly to the loan provider.
A personal loan helps the borrowers to meet their expenses or needs, from education to marriage-related costs. If you are applying for a personal loan for the first time, this article will be helpful. Read this beginner-level guide to cover the basics of personal loans.
What do you mean by a personal loan?
A personal loan is an unsecured loan taken by individuals from lenders or banks. The personal loan is provided by providers based on key terms like income, repayment capacity, credit, employment history, etc.
Being an unsecured loan, the personal loan is not secured by any asset or collateral. This is the reason why lenders levy high interest on personal loans.
Different purposes for which the personal loan is used
Personal loans are used to finance personal needs. You can easily use the personal loan for multiple purposes, like marriage-related expenses, buying or renovating the home, education-related, tour, gadgets or home appliances expenses, or emergency costs.
Personal loans benefit people in many ways because they can use them easily for any purpose they want.
Eligibility for a personal loan
The personal loan eligibility differs from one bank to other. The general eligibility criteria are based on age, income, occupation, repayment capacity and residency proof.
To become eligible for a personal loan, you should have a regular source of income, whether you are a salaried or self-employed individual or professional. The eligibility of an individual is affected by the company where the individual works.
The maximum duration of a personal loan
The maximum duration of a personal loan is 1 to 5 years / 12 to 60 months. The loan duration directly affects the monthly EMIs and, as a result, your savings. Hence, you must choose an ideal tenure for your personal loan so that the loan product results in successful cost covering.
Loan amount disbursal
Usually, the amount of a personal loan is disbursed within 7 days of application to the lender. Once you get the approval for a personal loan, you may either get the account payee cheque or draft the same as the loan amount or get the deposited money into your savings account digitally.
How much can you borrow?
These things are based on income and differ according to self-employed and salaried individuals. Typically, the bank limits loan amounts to less than 40-50 % of your monthly income.
The existing loan serviced by the applicant is considered while calculating the personal loan amount. For the self-employed individual, the loan’s value is determined according to the profit earned under the profit or loss statement.
Personal loans are the most preferred loan today. People can use the personal loan for many uses, as they want or need. You can also easily avail of a personal loan from a bank or lender once you know the eligibility criteria.