Given the uncertainty of life, there may be a situation where you need funds urgently. This could be for debt consolidation, wedding expenses, medical emergencies, etc. In such a scenario, you can get a personal loan to meet your financial needs. A personal loan is convenient as you can repay it over a period of time with easy instalments. In this article, we will cover topics such as benefits of personal loan and things to keep in mind before getting one.
Top 5 Personal Loan Benefits
Here are some of the benefits of a personal loan:
- Basic eligibility criteria and minimal documentation:
The eligibility criteria for personal loans are easy-to-meet and simple. This is the main reason why a lot of people favour personal loans over any other type of loan. In case you apply for the personal loan online, the entire documentation process is also digital. You can upload the scanned copy of the documents required for personal loan along with the application form. Most banks and NBFCs ask you to submit identity proof, address proof, bank account details, income proof, etc.
- Helps build credit score:
In case you have a poor credit score or are new to the credit arena, getting a personal loan is a great way to build your credit score by making the repayment on time. A personal loan can also help diversify your credit mix, which is a critical factor that the credit bureaus use to determine the creditworthiness. In addition, making timely payments of your EMIs demonstrates to loan providers that you are a responsible borrower, and this boosts the chances of you getting a loan in the future easily.
- Flexibility and collateral not needed:
Unlike other loans like education loan and home loan, you can use personal loan for any purpose. A single personal loan can be used for various purposes and is not limited to just one need. This flexibility is one of the main reasons as to why personal loans are so popular today.
Personal loans are a type of unsecured loan that basically means that you do not have to provide any collateral for the same. This feature of personal loans makes it accessible to everyone with a steady source of income and decent credit score.
- Instant disbursal:
A personal loan gets disbursed to your bank account in 24 to 72 hours. Therefore, it is the best financial product for your urgent cash needs. The loan verification is faster as there is no requirement for collateral. That being said, you have to meet the eligibility criteria and have a good CIBIL score to get the loan disbursed quickly.
- Debt consolidation:
Another benefit that a personal loan provides is debt consolidation. In case you have debts like high-interest credit cards or secured loans, you can use this loan to pay off those dues and eliminate liabilities from your loan portfolio. The rates of interest on a personal loan is considerably lower than that of a credit card. You can use low-interest personal loans to pay off high-interest loans. For example: you can take a 20 Lakhs loan and use it to pay four ₹5 Lakh loans.
Things to Keep In Mind While Getting a Personal Loan
There are few things that you have to consider before getting a personal loan. They are:
- Understand your repayment capacity:
While a personal loan can help you get in a financial crisis, it can also put you in one. Therefore, before you apply for the loan amount, make sure that you will be able to make the repayments comfortably. Make sure not to borrow more than what you can afford. You can use online personal loan EMI calculators to decide the loan amount, in accordance with your repayment capacity.
- Assess additional costs:
There are additional costs like prepayment, late payment and processing fees while getting a loan. According to the lender’s guidelines, an amount is charged for processing your personal loan application and this is called a processing fee. Therefore, before you apply for a loan, take into account the various fees that your loan provider charges to get a rough estimate of the total borrowing cost. This will help you manage your expenses better.
- Negotiate the interest rate:
There is a standard personal loan interest but if you have a good relationship with the lender or have a good credit score, you can negotiate interest rates with the loan provider. This may be profitable for you and will reduce your overall repayment burden.
- Do not approach a lot of lenders:
Every time that you make an inquiry with a lender for a personal loan, a query is raised and this appears on your credit report along with the date. With every query, your CIBIL score reduces. When a lot of queries are made in a short period of time, you will be considered as “credit hungry”, which drastically reduces your chances of lenders approving your personal loan application or this might lead to a higher rate of interest.
Many financial institutions offer personal loans but make sure to read all the terms and conditions before getting one. Compare the interest rates of different lenders and choose a personal loan that suits your needs the best. Check your credit score before applying and get it corrected, if required as the chances of your loan application getting rejected is high if your credit score is less. There are various third-party aggregator sites that you can use to compare various personal loans and the features they have.