A Detailed Guide on When to Take a Personal Loan

January 10, 2022

Wondering what is the right time to avail a personal loan?

A personal loan is one of the viable options to meet your financial needs on time. Fast, flexible and easily accessible, you can use personal loans for emergencies as well as for weddings, travel, shopping, etc., without giving away collateral. However, to determine the right time to avail of a personal loan, you need to keep close tabs on the interest rates for the same.

In this blog, let’s see the common reasons for which a personal loan is availed, the various interest rates, features, benefits, and the best time to apply for a personal loan. 

What is a Personal Loan?

A personal loan refers to a loan that you can borrow from lenders to fulfil various purposes, including repayment of previous debts, fund weddings, higher education, home renovations, travelling, etc.

Various lending institutions, such as banks, online lenders, non-banking financial institutions, can let you borrow a personal loan. The loan amount you will borrow will have to be repaid over time in EMIs. Some lenders might also charge you fees on personal loans.

It is an unsecured loan, i.e., you do not need collateral for availing of a personal loan. Also, the interest rates, eligibility criteria and loan amount vary from one lender to another.

There is a specific time when the personal loan needs to be paid off. This normally varies from a few months to a few years, decided by you in the form of equated monthly instalments (EMIs).

Reasons for personal loans lending depends on personal expenses. Personal loans have several benefits for the borrowers that range from the lending amount to the easy repayment options.

Working Mechanism of Personal Loan

A personal loan is nothing different from other loans. Even a low salary personal loan can be availed by a person who has a low monthly income. Personal loans come as both secured and unsecured loans.

opt for a secured personal loan. You will have to submit collateral to the lender in exchange for the loan. That way, if you cannot pay back the loan, the lender can use the asset as payment.

But in an unsecured loan, the borrower is not required to submit collateral security to the lender. So even if you do not pay back the loan, the lender has nothing to fulfil the loan payments.

There are repercussions as well if you do not pay back the loan. The credit score will be greatly affected, which, in turn, will raise the borrowing cost in many cases. The lender may even file a lawsuit to retrieve the fees, interest and outstanding debts on the personal loan.

Unsecured personal loans are one of the most famous favoured personal loans.

A lump-sum amount is deposited in your bank account in the personal loan. The loan repayment is made in a fixed time period at a fixed interest rate for that period. The repayment tenure can vary from one year to 10 years.

If you are not sure about the loan amount you need to borrow, you can take out a personal line of credit. Like a credit card, it is a predetermined credit limit, also known as an unsecured revolving personal line of credit.

The interest rate on the line of credit varies depending upon the prevailing rate of interest in the market. As a borrower, you can pay back the credit you withdrew along with the interest charges. This is not the case for personal loans. Even if it is a low salary personal loan, the borrower will have to pay the whole amount back that he borrowed from the lender. 

When Should You Take a Personal Loan?

Here are the best times to apply for a personal loan.  

For Home Renovation

Home renovation is an expensive take out. You might think that a home loan is a better option than a personal loan, but you’re wrong. Some of the major advantages of taking a personal loan are that you do not need to keep your house as collateral and get competitive interest rates. Shorter tenures also help lessen the burden of carrying a loan on your shoulders for a long time.

Dealing with Medical Emergencies

Medical emergencies demand instant financial support that can only be met with a personal loan. Because a personal loan is processed, approved and disbursed fast with less documentation, it can help meet your medical needs on time, hassle-free.      

For Studies

If you plan to continue your studies in either India or abroad, taking a personal loan can help you cover all the expenses. As there is no restriction on the loan amount, you can use it for education fees and living expenses.

Improving Credit Score

A personal loan comes in handy when you pay old debts. As your previous dues get cleared via the personal loan, a new payment cycle starts, only applicable to your loan repayment. This reflects on your CIBIL score. And, because the EMIs for the principal amount are designed as per your repayment capabilities and bear low-interest rates, you can pay them back easily. This, in turn, improves your credit score.       

Marriage Expenses

Weddings are a once in a lifetime event wherein the desire to have a glorious and expensive one is common. Instilling a sense of self-sufficiency, personal loans can go a long way to fulfil these desires while keeping your savings intact. From arranging wedding venues and shopping to going on your honeymoon trip abroad, a personal loan helps you finance the entire affair meticulously.  

Fulfil Your Dream Holiday

Personal loans help in times of need and fulfil your desire to go on a dream holiday. Being a fast, flexible and easily repayable finance product, you can even avail of a personal loan instantly online and go on the trip without any delays.

8 Benefits and Features of a Personal Loan

Given below are eight benefits and features of personal loans that you should know of.

  • Flexible Repayment Tenure: Personal loan offers flexible repayment tenure that suits your convenience. You can decide the loan tenure depending upon the budget and time you require.
  • Funding of up to ₹ 25 Lakhs: You can get a personal loan amount up to ₹ 25 lakhs for fulfilling all your present and future personal financial needs. Once you meet the eligibility criteria of a personal loan, you can lend an amount up to ₹ 25 lakhs.
  • Collateral-free Loan: As personal loans are unsecured loans, they do not require collateral. It is one of the reasons for personal loans lending as the borrowers do not need to mortgage their valuable assets.
  • Rapid Loan Amount Disbursal: Personal loan offers quick loan disbursement to the borrower’s account. The rapid disbursal makes the personal loan a good decision for medical or financial emergencies.
  • Minimal Documentation: One of the reasons for personal loans availing is because of minimal documentation. Required documents to avail of a personal loan are identity proof, address proof, income proof, passport size photographs, and credit report.
  • Fixed Interest Rate: Personal loan offers affordable interest rates and interest types, including fixed and floating interest rates. However, opting for a fixed interest rate is far safer as it remains undeterred by market fluctuations. You only have to be mindful that you opt for a loan with fixed interest rates when the rates are running low in the market. That way, your EMIs will be affordable, and the struggle of repaying on time or financial shortage ends.
  • Unrestricted Use of Loan Amount: One of the best reasons for choosing a home loan is to use the principal amount any way you want. There is no hard and fast rule that you have to use the money in a certain way when using a personal loan. 
  • Simply Eligibility Criteria: Personal loan has simple eligibility criteria. For lending a personal loan, you need to be an Indian citizen between the age of 21 to 65 years and have a good credit score. Even with poor credit scores, personal loans are approved at higher interest rates. The principal amount disbursed is lower than the standard required amount.

FAQs

What is the best reason to give for a personal loan?

There are various reasons for availing personal loans. Some of these reasons are paying off existing debts, home renovation, financing marriage ceremonies, medical emergencies, and fulfilling travel goals.

Is taking a personal loan worth it?

Yes, if you need instant funds, personal loans are the best option to go for. A personal loan is approved instantly, and no collateral is demanded against it. Furthermore, the principal amount is disbursed to the applicant’s account within a day or two. All of these features together make up for one of the most convenient financial products in the country, catering to everyone’s needs.

What are personal loans usually used for?

Personal loans can be used for several reasons like buying jewellery, gadgets or appliances, paying fees for higher education, going on a trip, decorating a house, buying clothes, funding weddings, etc.

What is the risk of having a personal loan?

One of the significant risks of taking a personal loan is the inability to pay back the loan amount on time. If the EMI amount is high, it can lead to a default on the loan amount and a critical financial situation. So, it is always advised to check one’s EMI amount and interest rate via online loan calculators before applying for a personal loan.

What are the disadvantages of taking a loan?

The disadvantages of taking a loan are high-interest rates, the number of fees and charges, credit damage, the need for a guarantor and collateral, unnecessary debt, etc.

Looking for something more?

Category:Personal Loan

You may like these posts