Many individuals prefer personal loans to fulfil their financing requirements, especially to tackle unforeseen emergencies. They can avail personal loans for any purpose, except for speculative activities, without furnishing any collateral or security. This loan facility also comes with other benefits including minimal/nil documentation and quicker loan disbursal as compared to most other credit options. Here follows some of the key features of personal loans:
Unsecured nature
Personal loans are unsecured credit instruments, as lenders do not require their loan applicants to furnish any security/collateral while applying for the loan. They assess their personal loan applicants primarily on the basis of their credit scores, income, occupational profile, employer’s profile, etc.
The loan processing becomes quicker for personal loans due to its unsecured nature. However, it also increases the credit risk for the lenders, leading them to exercise higher diligence while evaluating personal loan applications.
No end-usage restriction
Lenders offering personal loans have no restrictions on the end-usage of funds. Personal loan borrowers can use the loan proceeds to manage their personal and business requirements, except for speculative activities. For example, individuals can avail personal loans to finance their education, travel, wedding, medical expenses, etc. They can also use personal loans for debt-consolidation by using the loan proceeds to repay loans availed at higher interest cost. Similarly, business owners can also avail the personal loan overdraft facility for managing their short-term cash flow mismatches.
Pre-approved personal loans with instant disbursal
Many lenders offer pre-approved personal loans to their select existing customers having good credit profiles. Such pre-approved instant loan offers usually require minimal to no documentation and are disbursed instantly or within a few hours of making the loan application. These features make pre-approved instant personal loans an excellent credit option for dealing with financial exigencies.
Fixed & floating interest rate options
Public sector banks usually offer personal loans at floating interest rates while the personal loan interest rates offered by most private sector lenders are fixed in nature. The interest rates of floating rate personal loans offered by banks are linked to external benchmark rates like repo rate, T-Bill, etc. This makes floating rate personal loans susceptible to interest rate change(s) during the loan tenure. However, the interest rates of fixed rate personal loans remain stable throughout the loan tenure.
Quick loan processing
Most lenders claim to disburse personal loans within 2-7 days of receiving loan applications through the offline mode. However, the loan disbursal time is quicker for personal loan applications received through online channels. With lenders digitising their entire personal loan onboarding process, the turnaround time for loan disbursal has reduced to a few days.
Minimal documentation
Lenders usually require their personal loan applicants’ identity, income and address proof documents to process their loan applications. For income proof documents, salaried loan applicants usually have to submit their last 6-month salary slips and bank account statements. On the other hand, self-employed loan applicants are usually required to furnish their income tax returns (ITR), bank statements/passbook of their current/savings account(s) and last 1 year’s audited financial statements.
Flexible repayment tenures
Personal loans usually come with repayment tenures of up to 5 years. However, some lenders offer maximum loan tenures of 6 and 7 years. For any borrower, availing a longer tenure would reduce his EMI while increasing his interest cost. The reverse would be true on opting for shorter tenures. Moreover, lenders usually grant personal loan approval to individuals whose existing repayment obligations (including their proposed loan EMI) are within 50-55% of their monthly income. Prospective applicants who exceed this limit can opt for longer loan tenure to reduce their EMI and thereby, improve their chances of receiving loan approval.
Conclusion
The interest rates, loan amount, tenure, fees and chances of loan approval for a personal loan applicant may vary widely across lenders. This makes it important to compare the personal loan offers from as many lenders as possible before making the final loan application. Then, they should opt for the personal loan scheme, which offers the best in terms of overall borrowing costs, loan tenure and disbursal time.
