Personal Loan Tips

Does the Purpose of Personal Loan Affects Loan Approval?

April 22, 2022 • 6739 views

Often, borrowers wonder if the purpose of applying for a Personal Loan affects their loan approval. The answer, in certain cases, is yes. Although there is no end-use restriction on a Personal Loan, lenders check the purpose for which the borrower is availing of a specific loan amount. Accordingly, they approve or reject loan requests. 

Read on to know why knowing a Personal Loan purpose is important for lenders.

Why Does the Loan Purpose Matter?

The purpose of a Personal Loan acts as a key determinant of whether the borrower will get approval for their loan request. It also impacts the loan terms. From a borrower's perspective, this provision seems profitable as the lender gets to analyse their needs better and recommend a tailored financial product.

Some lenders readily accept Personal Loan reasons like university expenses, urgent medical care bills, home improvement costs, and even miscellaneous events like travelling, weddings, etc.

The more time you spend assessing the exact cause of borrowing, the higher your chances are of securing instant approval on your loan.

To ensure your Personal Loan purpose is duly met, you must check the loans offered by different lenders. Next, go through their eligibility criteria thoroughly before applying for a specific loan. Lastly, avoid requesting an excess loan amount as it will only contribute to increased EMIs. The loan purpose examples mentioned above are usually approved quickly.

Generally, the best solution is to be completely transparent with your lender regarding your borrowing intentions. Being honest is the only surefire way to receive the funds you need on time without worry.

For most lenders, you can use your loan for almost anything. However, several banks and NBFCs decide one’s Personal Loan interest rate based on their end usage.

Sometimes, your personal situation changes between the time you apply for a loan and the time you use it. Suppose you withdraw money for a child's wedding, but the marriage is postponed or cancelled. In such cases, you can use the money for other needs, such as paying off debt or funding other personal financing needs. But before you use the funds, make sure there are no end-use restrictions as per the lender.

If you are concerned about the mismanagement of funds, check with your lender to see if your new loan objective is covered.

Also Read: The Ultimate Guide to Comparing Personal Loan Interest Rates

6 Common Purposes of a Personal Loan

Most lenders ask their borrowers to specify the loan purpose while filling out the application form. This is a strategic step to determine the potential risks that may be involved with timely repayment.

Some common purposes for which you can receive loan approval include:

1. Emergencies

A common Personal Loan purpose example is using the money to pay multiple outstanding utility or medical bills. Lenders do not hesitate to provide financial aid in these situations if the borrower has demonstrated creditworthiness and a stable income source.

2. Debt Consolidation

You can manage getting a low-interest debt consolidation loan if you have a good credit score. It makes it easier for you to pay off existing high-interest loans and save the overall cost of borrowing. Moreover, these Personal Loans come with minimal processing fees, making repayments easily manageable.

3. Significant Life Events

If you're planning to move and settle in a new city or wish to pay for your dream wedding, you can apply for a Personal Loan online with minimal documentation.

4. Big Purchases

About to buy your dream car or invest in a new property?

Big-ticket purchases or products with a hefty price tag can significantly impact your budget and overall finances. To avoid that, you can use a Personal Loan to fund any big purchases, such as home appliances, furniture, or other consumer durable products. The best part is you can spread the payment into flexible EMI payments over a specific period.

5. Home Improvement

Whether it's a complete renovation, a home upgrade like new flooring or paint, or something more significant, you can show it as a valid Personal Loan purpose.

Also Read: Maximizing Your Savings: Tax Benefits of Home Renovation Loans

6. Higher Education

These days higher education expenses are soaring, making it difficult for many to access quality education either for themselves or their family. Under such a situation, you can opt for a Personal Loan to ensure timely payment of educational expenses, such as tuition fees and study material.

How to Apply for a Personal Loan Online?

To apply for a Personal Loan online, all you must do is follow these three simple steps:

  • Step 1: Click on the ‘Apply Now’ button.
  • Step 2: Enter the necessary details and upload the documents.
  • Step 3: Hit the ‘Submit’ button to complete the application process.

Once the lender has assessed and verified your details, the approved loan amount will be disbursed to your bank account without delay.

To Conclude

The Personal Loan purpose becomes a key determining factor when the lender decides the final loan amount and tenure. You should always compare the lenders to see which one offers the best deal based on your needs. Avoid borrowing more than you need and find a top-rated lender like Poonawalla Fincorp that offers a simplified repayment plan for your Personal Loan with quick approvals.

Loan Purpose - FAQs

  • Does asking for a Personal Loan affect your credit score?

Just like other loan types, when you apply for a Personal Loan, it leads to a temporary dip in your credit score. It happens because lenders consider every loan application to be a hard inquiry. Every time a hard inquiry is pulled, a person’s creditworthiness normally takes a dip for a short time. It is important to note that you avoid making multiple loan applications at the same time, as doing so can seriously harm your credit score and creditworthiness.

  • What is a loan purpose letter?

A loan purpose letter is used to improve your Personal Loan application, ensuring the lender gets to know that the loan is being taken for legitimate purposes. You can include your purpose, loan amount, and tenure in the letter, along with your basic personal details. You can also highlight how you are planning to repay the loan.

  • What's the best reason to put in for a Personal Loan?

A Personal Loan can be used as per your requirements. Unlike secured loans like Loan Against Property, a Personal Loan is unsecured and can be used for fulfilling a wide range of purposes. There are usually no end-use restrictions on the funds, provided it is being used for legitimate reasons.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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