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Millions and Millions of people take out personal loans each year to fund weddings, pay for unforeseen bills, make home upgrades, and much more.

Personal loan debt has climbed in recent years, rising from Rs 26,700 Crore in March 2019 to Rs 39,700 Crore in March 2020.

Why do so many people find personal loans attractive? Personal loans have lower interest rates and lower loan balances than other forms of loans, making them attractive to customers with good credit.

If you're considering taking out a personal loan, there are a few things to keep in mind about personal loans prior to making your final decision.

What is a personal loan?

A personal loan is a loan taken out by people to help them fulfill their financial obligations or needs. If you have unanticipated costs, this form of loan will come in assistance.

Individuals utilize personal loans to buy major things like AC or washing machines, restructure high-interest debts, cover marriage and academic expenditures, go on vacations, and for a variety of other purposes.

The loan is often obtained from a financial institution like a bank or a non-banking financial corporation (NBFC) at a predetermined interest rate and duration.

The following are among the reasons why you might want to apply for a personal loan:

  • Finance for vacations and holidays
  • To Pay for Special Occasions or Needs
  • Finance Weddings
  • House construction/renovation
  • Refinancing a home loan
  • Consolidation of Debts and other similar services

As a result, personal loans are the best choice for funding your urgent demands. It's quick and straightforward to get a loan. Furthermore, the documentation requirements are minimal.

What are the requirements for a personal loan?

The following are some of the most regularly used eligibility criteria:

  • The borrower must fall within a specific age range from 18-21 to 60-65 years of age.
  • Mostly accessible to paid employees of well-known MNCs, governmental or non – governmental companies. Self-employed candidates with documentation of successful business, ITRs, and other financial documentation are also eligible for personal loans.
  • The applicant must have the necessary KYC and other documentation on hand.
  • Personal loans are often exclusively available to Indian citizens.
  • For personal loan acceptance, many creditors have minimum salary requirements.
  • It is necessary to have worked or owned a business for a certain amount of years.
  • The applicant's CIBIL score is also taken into account while approving the loan and determining the amount and interest payment.

Personal loans are secured and unsecured.

Unsecured loans account for the vast bulk of personal loans. This implies you won't have to put up any kind of security to get the loan. Land, an apartment, a car, and other assets are examples of collateral—anything the lender could take to repay the losses due if you file for bankruptcy.

Nevertheless, not all personal loans are unsecured; some lenders provide secured loans with collateral requirements. Lenders may only issue you a secured loan if you have no credit or a bad credit rating since your credit record isn't a strong enough indication that you will repay the loan. Secured loans needn't have to be a terrible thing if you don't mind having to put up security and plan to repay the loan as a whole.

DOCUMENTS REQUIRED FOR KYC:

Documents required for address proof

  • Pan Card,
  • Adhaar Card,
  • Voter's ID and Passport
  • Driver's License with Photograph
  • Cancelled cheque

Documents required for income proof

  • Salaried: Pay slips from the last two years, as well as a six-month salary account bank statement.
  • Form 16

Important things to consider when seeking a personal loan:

Although a personal loan might help you financially, you must first grasp the legal conditions of the loan to avoid any last-minute surprises.

  • EMI: EMI stands for Equated Monthly Installments. An EMI is a set sum, including principal and interest that people pay to the lender on a monthly basis on a predefined day. EMI is a sum that totally pays off debt when paid over a period of time. The reliability of the EMI estimation aids in the planning of monthly expenses. You can also adjust your EMIs according to your needs.
  • The Interest Rate: The interest rate is the price of the principle that the financier charges for the usage of its funds.
  • Duration: The term or duration of a personal loan represents the length of time of year you have to pay back the loan. For instance, if your loan has a 6-year term, you must return the amount during the following six years. The EMI rises or falls in accordance with the loan's term.
  • Prepayment/Part Payment Option: Before applying for a loan, make sure you understand the repayment terms. You have the option of paying off the entire loan balance with interest before the term or duration provided in the loan contract, or you may pay off a portion of the amount borrowed with interest well before the term or tenure stated in the loan agreement. Because these services may come at an additional fee, read the small print before paying the entire or a portion of the amount borrowed.

Conclusion

Make a strategy for how you'll use the money and how you'll return it first before seeking out a personal loan. Consider the benefits and drawbacks of a personal loan versus another type of funding.

Get quotations from lending institutions to examine lending rates and financing options if you're seeking a personal loan. Remember to read the small print, which could include interest and fines. After you've gathered all of the information, consider if the advantages of a personal loan exceed the disadvantages before committing.

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