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When faced with a financial crisis, borrowing funds is a measure that many across the country rely on. So much so, that today there are many financial institutions that offer credit in different forms at an affordable cost.
Among these credit options, instant personal loans are favoured for numerous reasons ranging from easy accessibility to their unsecured nature. In addition to these features, digital advancements have enabled lenders to make personal loans more accessible with minimal documentation.
However, availing credit is a big undertaking that impacts your future finances. This makes it crucial for you to be responsible and prudent in your borrowing. To learn about instant personal loans and how to borrow responsibly, read on.
What Does a Personal Loan Work?
Personal loans are an unsecured credit facility offered by a majority of banks, NBFCs, and other financial institutions. The cost of availing these loans depends on the loan amount, interest, and period of borrowing.
Since these loans are unsecured, you do not need to pledge any of your assets as collateral or security with the lender, which is one of the reasons why many prefer it. In addition to being unsecured, the funding you receive has no end-use restrictions. This means that you can use the funds for any purpose you want – wedding, holiday, home renovation, etc.
Lenders approve your application for a personal loan only if you meet their eligibility requirements and submit the necessary documents to verify your application. Once your application gets approved, the sanctioned amount is transferred to your account.
You repay the borrowed amount along with the interest levied by the lender in monthly instalments spread throughout the tenure you borrow for. The lender may levy additional charges of fees for delayed payment or foreclosure of the account.
Important Terms to Know About Personal Loans
- Interest Rate
This refers to the rate at which the lender offers the credit. The interest rate you borrow influences the cost of borrowing and your instalment amount. Higher interest rates tend to result in higher borrowing cost and EMIs.
- Tenure
This is the period during which you repay and can usually go up to 5 years. Your personal loan tenure impacts the repayment instalment amount. A longer tenure basically implies more instalments.
- Sanctioned Loan Amount
This refers to the amount the lender offers as a loan. Also known as the principal amount, it impacts your instalment amount. Generally, a higher amount results in a higher instalment amount as the amount to be repaid is higher and vice versa.
- EMI
Short for Equated Monthly Instalment, this is the amount via which you repay your loan. As the name suggests, the instalment amounts are equally spread throughout the loan tenure.
- Foreclosure or part-prepayment
This refers to paying the loan amount in full or in part before the end of the loan tenure. Lenders generally levy a small fee when you foreclose or make a part-prepayment on your account.
- Processing Fees and Other Charges
Along with the interest rate, the lenders may levy a processing fee, a late penalty, or penalty for a bounced cheque, and more. These get added to your borrowing costs and as such are important to look at.
Key Features and Benefits of Personal Loans
Listed below are some of the top benefits and features that you can enjoy with a personal loan:
- Unsecured Credit
No security or collateral requirements allows you to use the loan amount without the worry about risking or losing your asset.
- No End Use Restrictions
Personal loan financing comes with no restrictions on where you can use it or how you can use it, unlike other credit such as a home loan. This gives you the freedom to meet your varying needs without any stress.
- Flexible and Affordable Repayment Options
A majority of the lenders offer credit at competitive interest rates and a repayment tenure that is as low as a few months to as high as a few years. This allows you to tailor your borrowing to suit current and future finances.
- End-to-End Digital Process
From applying to repaying the loan, most of the lenders have made all the processes digital. This enables you to borrow and repay quickly anytime and anywhere.
- Quick Disbursement
With digital advancements, the processing of personal loan applications has become quicker. Quick processing means you get speedy access to the loan amount.
- Easy Eligibility and Documentation
Most lenders have simple eligibility and documentation requirements for a personal loan, making it more accessible than other forms of credit. You can check your eligibility with a personal loan eligibility calculator before applying for the loan.
Eligibility and Documents Required for a Personal Loan
Given below is a tabular overview of the general eligibility and document requirements for a personal loan:
|
Eligibility criteria |
Documents required |
| Indian nationals and residents over the age of 21 and under 70 | KYC documents such as ID and address proof |
| Employed with at least 1 year of experience | Employment ID or business proof |
| Minimum income as per the area of residence and lender | Bank statements as income proof |
| Minimum credit / CIBIL score of generally above 750 | Other documents like ITRs, as required by lenders |
Keep in mind that these are general requirements and may vary depending on the lender and your application. You can check the specific requirements for a lender by visiting their website.
Things to Keep in Mind When Applying for a Personal Loan
Before you apply for a personal loan, keep the following points in mind to ensure that you borrow efficiently.
- Borrow only what you need and to ensure timely repayment as per your budget
- Use the personal loan EMI calculator to make sure that repayment instalment is manageable
- Calculate your eligibility with a personal loan eligibility calculator to increase your chances of approval
- Check your credit score before applying to ensure get an affordable deal
- Compare offers from various lenders to get the best deal
How to Apply for a Personal Loan
Fintech advancements have made applying for a personal loan quick, easy, and hassle-free. If you are looking for a quick personal loan then given below is a step-by-step guide on how to apply for a personal loan.
- Step 1: Visit the lender’s website or app
- Step 2: Navigate to the personal loan tab
- Step 3: Head to the application section
- Step 4: Fill in the required details
- Step 5: Complete verification process
- Step 6: Submit/ upload the documents
The lender will contact you in case of additional requirements. Once the lender processes and approves your application, the sanctioned amount will be transferred to your bank account. You can check your application status on the website or contact the customer care team.
Now that you know how to apply for a personal loan and be responsible about borrowing, choose accordingly. Being smart and conscientious while availing of credit can help ensure you get the financial support you need without straining your finances during repayment.
