Growing lifestyle aspirations of consumers and improved credit access have played a major role in increasing the demand for institutional credit among consumers. Among the various credit options, personal loans have emerged as one of the most popular choice for financing lifestyle goals and fund shortages. Here are some of the key benefits of availing personal loans.
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No-end use restriction
The proceeds from secured loan options like car loan and home loan can be used to meet specific financial requirements. However, the proceeds from personal loans can be used for any purpose like for financing medical expenses, education, wedding, home renovation, vacations, etc. The loan can also be used for consolidating debt, for purchasing the latest electronic gadgets or for meeting daily expenses.
No security or collateral required
Personal loan is unsecured in nature, i.e., loan applicants are not required to furnish any security or collateral to avail the loan. Such loans are approved on the basis of the loan applicants’ credit score, occupation profile, net monthly income, etc. Lending without collateral/security increases credit risk for the lenders, causing them to adopt a more stringent approach for their personal loan approval process.
Quicker loan processing & disbursals
Personal loans have quicker loan processing and disbursal process than other loan products like car loans and home loans. Most banks and NBFCs claim to disburse personal loans within a few business days of submitting the loan application through offline mode. However, digitization in the banking sector has enabled many lenders to offer personal loans through end-to-end online processes, which has enabled them to offer same day loan disbursals. This feature of personal loan has been useful especially for those requiring funds during a financial emergency.
Cheaper than credit cards
The interest rates offered on personal loans is lower than the interest rates charged on credit cards. Private lenders offer personal loans usually at 10.49% p.a. onwards. Some public sector lenders may offer these loans at lower interest rates. In credit cards, the interest rates on unpaid credit card spends usually starts from 40% p.a. In case of credit card cash withdrawals, these rates can be even higher. While the interest rates offered on loan against credit cards and EMI conversions are lower than the finance charges levied on unpaid credit card bills, the personal loan interest rates offered to consumers are usually found to be lower than the interest rates offered to them on availing loan against credit card or EMI conversion facilities.
Flexible repayment
The loan tenure for personal loan usually extends up to 5 years. However, some lenders offer longer loan tenures. For instance, the tenure offered on SBI Personal Loan can go up to 6 years and on Canara Bank Personal Loan, the tenures can go up to 7 years, thereby, allowing applicants to repay their loans in easy EMIs. Note that choosing shorter loan tenures will help borrowers pay off their personal loans faster and thereby, incur lower interest cost. Choosing longer loan tenure, on the other hand, will reduce monthly payments, helping applicants to ease their EMI burden. However, opting for longer tenures would incur higher interest cost.
Minimal documentation
To avail personal loan, applicants are usually required to furnish documents as proofs to establish their identity, residence and income to their lenders. The documents are usually the same for both salaried and self-employed applicants. However, as proof of income, salaried applicants are usually required to furnish their salary slips and bank account statements of past 3-6 months. Self-employed applicants are required to furnish their income tax returns of past 2 years, audited balance sheet and profit & loss account statements and bank statements of their current/savings accounts of past 1 year.
Pre-approved offers
Many banks and NBFCs offer pre-approved personal loans to their select group of existing customers having good credit profiles. As these loans are pre-approved, they usually have instant or same-day loan disbursals and require zero or minimal documentation.
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