Despite all the planning and saving, there are times in our lives when we need a large sum of money. In those emergencies, you often turn to banks for personal loans. While the benefit of a personal loan cannot be denied, certain technicalities push people away.
This is exactly why it’s necessary to know the important features of a personal loan before you get one for yourself. In this article, we will look at what a personal loan is, how they work, and some of the top features of personal loans for the current year.
What is a Personal Loan?
A personal loan is a loan where no collateral or security is required. A personal loan also requires very minimal documentation. This loan could be used for any personal financial need or an emergency.
Personal loans are very easy to apply for, and the qualification requirement is not very strict either. While other loans would require a lot of paperwork and collateral, personal loans are designed in such as way that availing them is a relatively simple process for a person. Like any other loan, a personal loan also requires to be repaid with respective interests and in the agreed time.
How do Personal Loans work?
For you to get a personal loan, you must contact your bank or any other lender available to you. You could apply for however the amount of money you require and put forth ahead of the bank. The bank/lender would then check your credit/CIBIL score and determine if you’re trustworthy enough to be given that amount of money. Usually, banks require a CIBIL score of over 720 for a person to be given a personal loan. However, other lenders offer loans despite a lower CIBIL score.
After checking the CIBIL score, the bank comes up with the amount they can give and the various payment tenures that can be chosen.
There has been a stark rise in people taking personal loans in recent times. Ease of access to personal loans is a major factor behind their success. However, there are other important features you should know before going for a personal loan. Those important features are mentioned below.
Important features of Personal Loan
Rate of interest
First, you would need to go over the interest rates of different personal loans. This will tell you how much you need to pay while repaying the loan amount taken from the bank.
Currently, personal loans beings offered in India range from anywhere between 9.99% to 49%.
The interest rates depend on your CIBIL score, which should be between 720-750. This score defines your trustworthiness, and lenders will approve your personal loan quickly if you have a good CIBIL score.
Probably the best feature of a personal loan is that it does not require collateral. Since personal loans are unsecured loans, banks don’t ask for property papers as collateral, as is the case with other loans.
A personal loan is strictly based on your ability to repay the loan which is why lenders/ banks ask for your monthly income and your credit score.
People often take personal loans in case of any emergency, which is why these loans are required to be disbursed quickly. Since other loans like home loans, education loans, etc., require a lot of documentation, it is often that banks take a significant amount of time to pay them.
This is, however, not the case with personal loans. These loans require a lot less documentation and hence are given in a short time which is helpful when money is needed on short notice.
While other loans such as car loans, home loans, and educational loans can only be used for that specific purpose, personal loans do not have this rigidity attached to them. A personal loan can be used for any necessity, such as weddings, travel, medical expenses, etc.
Multi-purposeness of a personal loan is one of the very important features, and this is why many go for personal loans when in need of financial help.
Another key feature of a personal loan is that it allows the loanee to choose from multiple payment timelines. You could choose to repay the loan in a short duration if you have a good salary but could also choose affordable monthly payments if you require more time.
A personal loan tenure could be anything between 12 months to 60 months which gives the loanee enough time to repay the loan amount as per their financial standing.
Flexible loan amount
Another important factor that you must know about is that personal loans offer flexible amounts. You could take a personal loan from anywhere between 10,000 to more than 40 lakh.
No matter what you need money for, be it a small amount that you need for a smartphone or you need a vast sum for a wedding, you could go to a bank and ask for a personal loan based on your salary.
Another essential feature of a personal loan in 2022 is that you could get a tax deduction. You could be eligible for INR 2 lakh as per section 24B on your personal loan based on the usage of the loan amount. The bank would require you to see an adequate document for you to collect the tax benefit on the personal loan.
In conclusion, personal loans have many benefits, but you need to consider some above-mentioned factors. These factors will help you curate the best personal loan for you. You must make sure to repay the loans on time so your CIBIL score remains healthy, and you could take other personal loans in the future as well.