Are any of the following scenarios familiar? You need some extra cash to go on that much dreamed of European holiday; you need some money to buy some big –ticket furniture items and to redesign your house; or your child or sibling’s marriage expenses are beyond your income; or a parent has a medical emergency and you do not have enough savings to cover the expenses. In all these cases, a personal loan is the quick answer.
A personal loan is generally an unsecured loan—meaning no collateral or guarantor is required in order to obtain it. As the name suggests, it is a loan taken by an individual to fund any personal expenses and doesn’t have any restriction on the end use, unlike many other kinds of loans. The borrower has the full freedom to use the money for any purpose they want.
Features of A Personal Loan
There are two attractive features of a personal loan:
Complete flexibility of end-use. There are no restrictions on how you should spend your loan amount. A home loan, or a vehicle loan, or education loan, on the other hand, can be only used to buy a property or a vehicle or fund a course respectively. With a personal loan, you have the freedom to use the money in your own way – whether to fund your hobby, or to finance unexpected expenditure.
No security required. A personal loan is an 'unsecured loan', meaning you are not required to provide any security to the lender in the form of asset, shares or cash. This might make it more attractive to some customers who may not be able to raise the assets required as collateral.
The only downside to taking a personal loan is the high interest rate. Since it is an unsecured loan, the lender usually charges you a high interest rate to avoid risk of falling into bad debt.
When Should You Choose a Personal Loan?
A personal loan come in handy in two cases:
If you are in an urgent need for money, and have a good plan on repaying it, then availing a personal loan is a good choice. This is because the loan disbursal can be relatively quicker than for most other loans. In case of a personal loan, you do not need to provide extensive documentation since there is no specified end-use for the loan. The documentation and approval process is relatively simple and speedy, and the loan amount is disbursed within a short span of time.
If you do not have any assets to pledge as security for a loan, then opting for a personal loan is a good choice. Lenders will instead pull out your credit report from the credit bureau and have a look at your credit and repayment history and income stability to judge if you are a low-risk customer.
If you think you need a personal loan and are unsure about the eligibility requirements, and which personal loan is best for you, then CreditMantri can guide you through the entire process and match you with the offer that best suits your needs.