You’re in desperate need of money and have no choice but to take out a personal loan. It’s your first time using personal loans for financial assistance, and you’re not sure what a personal loan is, how it works, what the qualifying requirements are, what documents you’ll need, etc. Don’t worry; we’re here to assist you.
- What are personal loans, and how do they work?
Money borrowed by banks, NBFCs, and other financial organizations is a personal loan for personal needs. You borrow a lump sum and repay it in monthly installments over the loan’s term, usually 12 to 84 months. Once you’ve paid off the loan and interest, your account will be closed. However, you can apply for a new loan if you need more money in the future. Depending on your trustworthiness, you can acquire a loan of a few thousand rupees or a lakh of rupees.
- How many kinds of personal loans are there?
There are two types of personal loans based on security:
- Secured loan
- Unsecured loan
It is a loan in which you put up collateral, or an asset, as security to advance loan so that the lender can recover their funds if you default on the loan. In most cases, the interest rate on a loan with collateral is considerably lower than that without collateral.
The borrower of an unsecured loan does not need to provide collateral in exchange to finance loan amount. However, because of the lender’s risk, the interest rates on these items are higher. Unsecured loans are available based on your credit score, income, and financial situation.
- What are the different options for obtaining a personal loan?
Personal loans are available from various sources, including banks, credit unions, friends and family, and the increasingly popular personal loan apps. These personal loan apps can offer you a loan with minimal documentation in a couple of minutes.
- What documents do you need?
You need the following documents to avail a personal loan
- Photo identity proof
- Address proof
- Salary slips for the last three months
- Bank account statements for the past three to six months
You can easily upload these documents to the apps and save them as a backup.
- What are the rates of interest and other fees?
Because the interest rate significantly impacts the loan amount, you should carefully pick your loan plan. Interest rates usually range from 5% to 36%, depending on the lender and your credit score.
The lower your credit score, the cheaper the interest rate you’ll pay. However, you will pay more interest if your loan is for a more extended period. If you pay early, you will be depriving the lender of the interest he will get, and they may charge you a penalty. Origination costs are fees charged by lenders for the processing of a loan. Keep an eye out for these charges so they don’t catch you off guard.
We are sure that you now have a general idea of personal loans. But, not just with personal needs, you can even get business loans online for your business expenses.