What is Personal Loan: Meaning, Benefits and How to Get One

A Personal Loan is one of the most commonly used ways to manage immediate financial expenses without disrupting savings. As an unsecured form of credit, a Personal Loan does not require collateral and is typically approved based on your income, creditworthiness, and repayment history. Personal loans, unlike secured loans, can be instantly approved with a simple application process, making them a practical option when funds are needed without delay.

Let’s understand how easy a Personal Loan can be to apply for, what benefits it offers, and other fundamental details about personal loans.

What is a Personal Loan?

A Personal Loan is a type of unsecured loan that allows you to borrow a fixed amount of money from banks or financial institutions without providing any collateral. It means that you don’t need to mortgage property or assets to get a loan. Based on your CIBIL credit score, income, and repayment capacity, the Personal Loan is approved. It can be repaid in fixed monthly instalments, also called EMIs, over a defined period of time. 

Unlike secured loans, like home loans or car loans, which are used for specific purposes, personal loans can be used for a range of different purposes, like managing medical expenses, travel, education, or home repairs. There are instant personal loans available that are disbursed quickly (within 30 minutes to 4 hours) to attend to immediate financial requirements.

How to Apply for a Personal Loan in India?

Personal loans in India can be obtained through different organisations, including banks, non-banking financial companies (NBFCs), and digital lending & fintech platforms. So, it is important to choose a reliable lending authority that not only provides personal loans on favourable lending terms but also ensures safety and transparency. 

The process to apply for a Personal Loan is simple and hassle-free. 

• Apply for a Personal Loan: Apply for a Personal Loan online or at a lender’s branch. 

• Eligibility check: The lender evaluates your profile based on income, CIBIL score, and credit history.

• Document verification: The submitted documents for identity, address, and income proofs are verified and validated. 

• Loan offer: Based on your profile evaluation, the lender shares a loan offer with suitable lending terms, like loan amount, interest rate, loan tenure, and EMI.

• Loan agreement and disbursement: You review and sign the loan agreement with all terms & conditions. The loan amount is directly credited to your bank account within a few hours or days. 

Since personal loans are unsecured loans, the application process is typically faster as it doesn’t involve collateral evaluation or extensive paperwork. You can also apply for a Personal Loan jointly with another individual to improve your chances of approval, especially if the co-applicant has a stronger financial profile. 

Common Uses of Personal Loan

Personal loans can be used for a variety of needs, including weddings, vacations, medical expenses, and home renovations.

Medical Emergencies

Unexpected medical emergencies create financial problems that require urgent medical treatment. The Personal Loan provides immediate funding to cover both medical costs and hospital expenses. 

Debt Consolidation

People use personal loans to combine their existing debts into one debt they must repay. This process allows debtors to join their various financial obligations into one payment system. The process enables users to manage their credit card payments together with their outstanding loans. 

Wedding Expenses

People use personal loans to pay for their wedding costs. The flexible loan amount helps cover venue, travel, and event costs. 

Education Expenses

A Personal Loan provides financial support for educational purposes. People prefer this option over education loans because it provides faster funding. 

Home Renovation

Homeowners use these funds to pay for necessary repairs and to make interior design changes. Personal loans can be used to pay upfront for large purchases, like electronics or furniture.

Benefits of Personal Loans

Here are some reasons why personal loans can be beneficial in some cases, instead of secured loans:

Instant Access to Funds

Instant Personal Loan solutions are available through multiple lenders in the present day. The system allows borrowers to obtain immediate credit approval and receive their funds without delay. 

No Collateral Requirement

The Personal Loan functions as an unsecured loan, which means the borrower does not have to pledge any property or assets as security. Other common examples of unsecured loans include credit cards or student loans.

Flexible Repayment Options

Borrowers can choose their repayment period depending on how much they can afford to pay back. The system provides a means for users to pay back their loans without facing financial difficulties. Besides, some personal loans come with features like zero foreclosure charges. This means that borrowers can repay their loans early without penalties.

Competitive Interest Rates

Lenders provide competitive interest rates to users who meet their eligibility criteria, and individuals with high credit scores can access lower interest rates. However, personal loans have higher interest rates as compared to secured loans because there is no collateral required, which increases the lender's risk.

Digital Application Process

The online Personal Loan application process makes it easier for people to borrow money. The process needs only basic information and requires only minimal documentation to complete. 

Things to Consider Before Applying for a Personal Loan

To ensure a hassle-free borrowing experience, it is important to consider some essential factors to ensure the loan and repayment terms align with your financial capacity: 

• Compare the interest rates across the lenders and calculate the overall cost of the loan, which includes processing fees, pre-payment charges, and late fee payment fees. 

• Borrow only the amount you need and ensure the EMI does not exceed 30% of your monthly income. 

• Choose a loan tenure that balances EMI affordability and overall interest cost. A longer tenure reduces EMI, but increases overall interest cost, and a short loan tenure increases EMI value, but reduces interest cost. 

• Select a reliable and RBI-registered lender that offers transparent terms, a secure process, and proper customer support. 

• Confirm with the lender about the pre-payment fees and late payment charges. 

• Every lender has different eligibility criteria, so ensure you understand these requirements to get a quick approval.

Read Also: Personal Loan Agreement – Things to Know Before Signing It

To Conclude 

A Personal Loan enables borrowers to obtain funds rapidly without needing to provide security, whereas secured loans require collateral. The best personal loans with attractive interest rates become available to applicants who possess strong credit scores and who demonstrate consistent income stability. The application process for personal loans enables you to secure the funding needed to address both immediate financial needs and your upcoming financial targets.

Poonawalla Fincorp Personal Loan provides competitive interest rates and a quick approval process with minimal documentation requirements and flexible options for repayment. Apply now to get a Personal Loan at competitive interest rates!  

FAQs

What is a Personal Loan in simple words? 

A Personal Loan is an unsecured loan that allows borrowers to access funds without collateral for personal expenses.

What documents are required for a Personal Loan?

Typical Personal Loan documents include identity proof, address proof, income proof, and bank statements.

Can a Personal Loan affect my credit score?

Yes, a Personal Loan can affect your overall credit score. That's why it is important to ensure timely repayment of all the EMIs, so that the loan has a positive impact on your credit score.

Can I get an instant Personal Loan with a low credit score?

Some lenders offer loans to applicants with low credit scores; however, interest rates may be higher. Scores below 750 may result in higher Personal Loan interest rates as compared to individuals with scores higher than 750.

What happens if an unsecured loan defaults?

An unsecured Personal Loan defaults when the individual fails to make scheduled EMI payments for 90 consecutive days or more. If an unsecured loan defaults, the lender may initiate recovery actions or take legal action. The borrower's credit score will be severely damaged if the loan defaults.