Definition of Personal Loan
A personal loan is money borrowed from a financial institution, credit union, or online lender, which you repay in fixed monthly obligations, or payments. The payment period typically ranges from more than two to seven years. Interest rates for personal loans can vary from 6% to 36 percent APR.
Most of the personal loans are “unsecured” in nature and not backed by collateral. A secured loan backed by something you have is typically more affordable. Still, you may lose your property, which is submitted as collateral if you default. Typically the money can be used for any reason.
Why Personal Loan
With most lenders, you have a good deal of leeway for how it is possible to use the funds of personal loans. That includes things such as:
- Debt consolidation (particularly for credit card debt)
- Medical invoices
- Home repair and renovation costs
- Repaying family or friends
- Wedding expenditures
- Divorce costs
- Replacement costs
- Funeral costs
- Vacations
- Furniture or appliance purchases
- Small company expenditures
- Holiday purchasing
Remember, however, that some creditors might have limitations about how you can use your fund. Some could prohibit education-related expenses as an example. Check with the lender ahead to be sure that you can use a private loan for the intended purpose. Read more here.
Benefits of Personal Loan
- Unlike other kinds of loans such as Home Loan or Gold Loan, you have to provide several records, Personal Loans demand minimum files, and the approval process is fast.
- With various financial institutions offering Private Loan, the loan amount will be released in a couple of hours, provided that the creditor is convinced of your repayment ability.
- Another important feature of personal loans is that the creditors give you the flexibility to pick your loan tenure. Usually, personal loan tenure ranges from one to seven years. So, you can choose the loan duration based on your repayment ability. It would be best if you opted for a shorter loan, so you can save the interest and repay the sum quicker.
How Personal Loan Works
When you receive a personal loan, you generally get your cash in a lump sum, and you refund with fixed monthly payments over time. On the other hand, the details may differ from lender to lender. There are a couple of things to consider.
They are as follows:
- Interest Rates
- Repayment Time
- Organization Fees.
How much One Can Borrow?
It typically depends upon your income and fluctuates based on if you’re salaried or self-employed. Normally, the banks limit the loan amount so that your EMI (Equated Monthly Instalment) is not greater than 40 to 50% of your monthly earnings. Any present loans, secured from the applicant, can also be considered when calculating the loan’s amount. For the self-employed, the loan value is decided based on their profit earned according to the latest acknowledged profit/Loss announcement, while considering any extra liabilities (for example, present loans for business, etc.) he may have.
So, here are some basic facts about personal loans. Have you ever taken personal loans for yourself or someone? Please share your experience with us in the comment section. Or are you planning to take one? Have you any questions about this issue? Leave that in the comment. We’d love to hear from you and help you.
