What is a Personal Loan?

5paisa Research Team Date: 25 Oct, 2023 06:28 PM IST

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Introduction

Personal loans are unsecured since they do not require collateral from the borrower. They typically cover short-term expenses like medical bills and home improvement projects. 

Several types of personal loans are available, including those for debt consolidation, home improvement projects, medical bills, and more. Debt consolidation loans allow borrowers to consolidate multiple loans or debts into one loan with lower interest rates. Home improvement loans can be used for home renovations, and medical loans can be used to pay off medical bills. Medical loans typically require the borrower to provide proof of income before approval. Personal lines of credit act like credit cards but with much higher limits and fixed rates. 

 

What is a Personal Loan Interest Rate?

The interest rate on personal loans can vary depending on the loan amount and a borrower's credit score. A higher credit score helps a borrower with a lower interest rate. When considering a personal loan, it is vital to understand the interest rates and repayment terms. 

Personal loan interest rates range between 6% to about 36% p.a. Depending on the loan amount availed by you, your credit score, repayment tenure, and the rate of interest on your loan are decided. 


 

What is an example of a Personal Loan?

An example of a personal loan would be taking out a debt consolidation loan to combine multiple debts into one debt with a lower interest rate. 

 

What is a Personal Loan used for?

A personal loan is commonly used for debt consolidation, home improvement projects, medical bills, and more. They are also helpful in covering emergency or unexpected expenses. Before taking out a personal loan, it is important to understand what type of loan you are getting, the interest rate and repayment terms, and your ability to borrow. 


 

What are the Benefits of a Personal Loan?

  • Personal loans are unsecured, short-term loans with lower interest rates than credit cards and other alternative forms of borrowing. 
  • The terms for personal loans can be flexible and tailored to the borrower's needs. 
  • Personal loan interest rates can be low depending on the size of the loan, a borrower's credit score, and other factors.
  • Personal loans can be used for various purposes, including debt consolidation, and medical bills, home improvement projects, etc. 
  • Personal loans are helpful for covering emergency expenses or unexpected costs.
  • Taking out a personal loan can help improve credit scores over time. 

 

How to Check Personal Loan Eligibility?

The process for checking personal loan eligibility is relatively simple. Borrowers should check their credit score, credit history, and income and assets before applying for a personal loan. Additionally, lenders will require proof of income and other forms of identification to ensure that the borrower can afford to repay the loan. 

Some websites even have an eligibility calculator to help calculate your loan eligibility based on your income and expenses. 

 

What is the Maximum Amount that you can Borrow?

The maximum amount a borrower can borrow on a personal loan will depend on the individual lender, your income level, and your credit score. Generally, a higher credit score means you can borrow with a lower interest rate. 
 

Is it Possible to Apply for a Joint Personal Loan?

Yes, it is possible to apply for a joint personal loan. This type of loan is suitable for couples or friends who want to share the responsibility of repaying a loan. The interest rate will depend on both parties' credit scores and income, so all applicants must have good credit scores and steady incomes. 

 

What are the Necessary Documents Required for Availing a Personal Loan?

  • National ID document; 
  • Proof of income (e.g. payslips, bank statements); 
  • Current address and residence proof; 
  • Bank account statement 

 

How Quickly can I avail of a Personal Loan?

Once you have completed the application process and submitted the requisite documents, banks typically take around one to two weeks to review a personal loan application. Depending on your lender and the type of loan, you'll be able to receive your funds within 1-2 days. 

 

What about Interest Rates, Tenure, etc.?

The interest rate depends on various factors, such as the loan amount, the borrower's credit score, and other factors. Generally, loans with higher interest rates require shorter repayment terms, while loans with lower interest rates have longer repayment terms. Lenders will also charge additional fees for processing and origination.

 

How Quickly can I avail a Personal Loan?

Once you have completed the application process and submitted the requisite documents, banks typically take around one to two weeks to review a personal loan application. Depending on your lender and the type of loan, you'll be able to receive your funds within 1-2 days.

 

What about Interest Rates, Tenure, etc.?

The interest rate depends on various factors, such as the loan amount, the borrower's credit score, and other factors. Generally, loans with higher interest rates require shorter repayment terms, while loans with lower interest rates have longer repayment terms. Lenders will also charge additional fees for processing and origination.

 

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