Personal loans are the go-to option for meeting financial goals and requirements. They are unsecured loans and do not require any collateral. You can use them for various purposes like organizing a grand wedding, taking a trip to an exotic location, meeting unforeseen medical emergencies, or renovating your home to upgrade the look.
One of the foremost personal loan benefits is its hassle-free application process. Besides, a personal loan is convenient since you can repay it over a period in pocket-friendly installments.
How do personal loans work?
Personal loans are similar to most other loans. You can reach out to a bank or lending institution to apply for the same. Next, submit all the necessary documents listed by the lender. The bank verifies the information you provide to ensure it is accurate and true. It also checks your creditworthiness before making a loan offer. If you accept the offer, the lender transfers the loan amount to your bank account, and you can use it as per your requirement.
The borrower needs to repay the loan amount in equated monthly installments (EMIs). The installment amount is calculated based on the loan amount, interest rate, and loan tenure.
5 reasons to get a personal loan
You must consider your financial situation before taking on a loan. A personal loan helps finance a large purchase that you cannot afford upfront. These include:
1. Home renovation: Personal loans are the best way to pay for upgrading your home or completing necessary repairs.
2. Emergency expenses: A personal loan is a low-cost option to meet an emergency, such as the funeral of a loved one or sudden medical bills.
3. Moving costs: If you don’t have the cash for a local or a long-distance move, you need to take a personal loan to pay for the moving expenses.
4. Vacation expenses: The cost of an average vacation may not require taking a personal loan. But, what if you want to go on a luxury cruise? A personal loan comes in handy to fulfil such vacation dreams.
5. Wedding costs: A personal loan allows prospective couples to finance big-ticket items like the wedding coordinator, venue, bride’s and groom’s dress, etc.
Top 9 personal loan benefits
1. Hassle-free documentation
One of the most significant personal loan benefits is minimal documentation. If you apply online, the documentation is entirely digital. You can upload the required documents along with your application form. The process is entirely paperless. Some lenders also provide a service for doorstep document collection.
For the process, banks and financial institutions request you to submit proof of age, address, bank account details, salary slips, income tax returns, credit history, etc.
2. Quick disbursal
The disbursal of a home loan takes around 3 to 4 weeks. On the other hand, a personal loan requires only 24 hours to 72 hours. Thus, they are the best financial product for meeting urgent cash or payment requirements. However, you must meet the eligibility criteria and have a good credit score to get your loan disbursed quickly.
3. No collateral required
Personal loans are unsecured loans. Thus, you do not need to provide any collateral as security for default or non-payment of dues at your end. This feature of personal loans makes them accessible to everyone with a regular source of income and a good credit history.
4. Help with debt consolidation
Another vital personal loan benefit is its ability to clear debts. If you have debts like secured loans or high-interest credit cards, you can use the personal loan to clear the dues and eliminate liabilities from your portfolio. The interest rates on personal loans are lower than on credit cards. So, you can use the low-interest financial product to pay off high-interest debt.
When it comes to using a loan, there is no better bet than personal loans. Banks and lenders do not impose any limitations or restrictions on the end-use. That is one of the most beneficial facets of a Personal Loan. You can use the borrowed money to plan your dream vacation, repay other debts, purchase luxury gadgets and accessories, or host a grand wedding. Personal loans also help to meet medical expenses in times of emergency.
6. Build credit score
Affordable personal loans are a great way to build your credit score, especially if you are new to credit or have a low credit score. You can avail of them at attractive interest rates and repay them over a flexible loan tenure. As you pay your EMIs and interest on time, your credit score keeps improving.
However, remember to avail of a loan within your repayment ability. If the loan EMI is unpayable and you miss any EMIs, it can negatively impact your credit score.
7. Flexible tenors
One of the personal loan benefits attracting borrowers is a flexible repayment schedule. The tenure starts from 12 months and can go up to 7 years. Therefore, you can choose a tenure suitable to your finances and needs. A longer tenure means lower EMI. So, choose a tenure that lets you optimize your monthly outgo as per your needs.
8. Attractive rates of interest
Personal loans are available at competitive interest rates. As a result, you can enjoy affordable EMIs. Generally, the rate of interest is fixed. So, your EMIs are also fixed for the entire loan term, and you have no worries about changing interest rates.
9. Tax benefits
Depending on the utilization of funds, you can claim tax-related exemptions on your personal loan. For instance, if you use the loan for home renovation, construction, or making a down payment for a house, you are eligible for tax deductions of up to Rs. 2 lakh under Section 24B for the interest paid during a financial year. However, different use cases are subject to additional terms and conditions. Submit the required documentation to understand how you can enjoy tax benefits on your personal loan.
CIBIL score required for a personal loan
Many borrowers are worried about the CIBIL score they require for availing of a personal loan. Credit Bureaus, such as CIBIL, assign every individual a credit score in the form of a number between 300 and 900. If you have a high CIBIL score, your chances of loan approval are high. This is regardless of the type of loan you are applying for. Individuals with a high credit score can get higher loan amounts or lower interest rates.
A credit score below 750 can lessen the chances of getting a personal loan. It can also lead to a lower loan amount or a higher interest rate. A credit score below 600 requires evaluation. You must check the reasons and attempt to increase the same. Some of the reasons leading to a low credit score include delay in payments of past EMIs, missing EMIs, excessive purchases made on credit, or several applications sent to banks for credit cards or loans.
Personal loans are in high demand these days. In this blog, we’ve covered nine personal loan benefits, but plenty more contribute to its popularity. Before you opt for a personal loan, ensure that the amount being availed matches your repayment ability. Also, read all the terms and conditions carefully. Many lenders, fintech companies, and banks offer personal loans. Compare the interest rates and choose the option most suitable for you.
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