What Is A Personal Loan & Benefits of Obtaining This Loan

Team Lifelords | Posted on June 10, 2019 | No Comments |

Last Updated on June 1, 2024 by Team Lifelords

What Is A Personal Loan & What Are The Benefits of Obtaining Personal Loan

“Wealth, like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service.”

– Henry Ford

What Is An Unsecured Personal Loan

What Is A Personal Loan And Benefits of Obtaining A Personal Loan: As the name suggests, a personal loan is a loan taken by an individual to meet his/her personal needs. Personal loans are usually unsecured loans, which means that the borrowers are not required to put any of their assets as collateral for availing these loans.

These loans are relatively short-term loans and the tenure can range from 1-5 years. As the amount taken on loan doesn’t take any asset or possession for your things, it is given on the basis of your employment history and monthly income.

Just like most loans, a personal loan has to be repaid by the borrower in Equated Monthly Instalments or EMIs. As mentioned above, a personal loan is taken by an individual to fulfill his/her personal needs.

It means that there is no specified end-use for a personal loan. You usually can use the funds at your discretion, but some lenders will restrict what you do with the money.

Since personal loans are unsecured loans, interest rates charged by the lenders for these loans are usually on the higher side. However, if you have a good credit score, you can get personal loans at very competitive interest rates.

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When Should You Consider To Opt For A Personal Loan

In recent years, personal loans have gained a lot of popularity, but it has also increased the chances of people getting fooled by their popularity and ending up piling unnecessary debt upon themselves. So, the first thing that you must know before getting a personal loan is why you need it.

Personal loans can be taken for a variety of needs. The lender will never ask the borrower about the end-use of these loans. There are many reasons why any individual opts for a personal loan. We think in the following circumstances, a personal loan might be a good idea for most people.

1. Pay For A Wedding Ceremony

You can fall short of money for your wedding as the last moment unplanned expenses get added up which cannot be avoided. If you would end up putting all associated charges on your credit card without being able to pay them off within a month, it would cost you heavily.

Because banks charge exorbitant interest on the principal amounts. A personal loan for a large expense like this might save you a considerable amount on interest charges, provided it has a lower rate than your credit card.

2. Consolidate Credit Cards

If you have one or more credit cards that are charged to the max, you could get a personal loan to consolidate all the charges into one monthly payment. What makes this scenario even more appealing:

The interest rate on the loan could be considerably lower than the annual percentage rates (APRs) on your credit cards.

3. Finance A Purchase

Financing a purchase depends on whether it is a want or a need. If you’re going to take out a loan anyway, getting a personal loan and paying the seller in cash might be a better deal than financing through the seller.

Don’t ever make a decision about financing on the spot, though. Ask the seller for an offer and compare it to what you could get through a personal loan. Then you can decide which is the right choice.

Personal Loan Could Be A Good Choice In These Situations

4. Paying for a family vacation abroad. Personal loans can help you have dream vacations and you can later keep on paying the loan installments.

5. Making big-ticket purchases. You can buy things for which usually a huge sum of money is required in one go. You can later pay the EMIs.

6. Procure an instant loan with quick disbursal for any medical emergency in your family and a shortage of money.

7. Purchasing jewelry for any important occasion or gift something to family or relatives.

8. Funding your education course or your child’s higher education.

9. You can start a new business idea without diluting it with equity.

10. You can raise working capital for businesses and start-ups.

11. Any family function that cannot be avoided.

12. You can buy a house or car in cash.

13. Renovating your home.

You can have any other reason for having a personal loan for yourself which may not be listed in this answer as well and that could be knowingly or unknowing uncertainty.

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Types of Personal Loan & Benefits of Availing Personal Loan

What Are The Types of Personal Loan

Now that you know about the definition and use of personal loans, let’s talk about the types and benefits of personal loans. Generally, Personal loans are unsecured loans that are used to meet immediate cash requirements. But why personal loans are unsecured loans?

Because the borrower is not required to pledge any security or collateral to avail these loans. However, in some cases secured personal loans are also available. In this scenario, the collateral might be your bank’s fixed deposit, car, or other property.

Compared to an unsecured personal loan, a secured personal loan may be easier to qualify for and carry a somewhat lower interest rate. As with any other secured loan, you may lose your collateral if you are unable to keep up with the payments.

Most Common Benefits of A Personal Loan

The primary motive for taking any loan is to avail of financial assistance. However, there is an added advantage for personal loans — it comes with no end-use restrictions. You can utilize the personal loan to finance your education, medical emergencies, weddings, exotic vacations, and many more.

The importance of personal loans is increasing since we live in a time surrounded by financial uncertainties and rising expenses. Now we will list out some benefits of a personal loan:

1. No collateral is needed. Yes, You don’t have to mortgage your assets for a personal loan. While lenders do charge higher personal loan interest rates to secure the money they lend without collateral, they are still unsecured against any assets. It still sounds like a more viable option than borrowing from friends and family.

2. Personal loans have a wide utility. You can take the loan for business, wedding, vacation, education, or any other purpose. The list is endless with where you can put the money to use, as long as it’s of course legal. It’s that simple, and this flexibility of use allows people to get more attracted to personal loans.

3. Personal loans are usually easier to obtain than business loans. Business lenders are often much stricter and tight-fisted than their personal counterparts. Another benefit of using a personal loan for business is that personal loans are usually unsecured and you don’t have to put up collateral to get the loan.

4. Personal loan provides you great flexibility in availing money and paying it back to the lender. You can be lent as much as ten times the amount of your salary. And depending on the factors that determine the period of payback, you can opt for an easy tenure in easy installments.

5. Availing of a personal loan is hassle-free. Since you are not required to pledge any collateral, it involves minimum paperwork. You can simply apply for a personal loan online to avail of quick financing. If you have a strong credit history, then it takes no time!

6. Personal loans are not restricted, and one can apply for a loan amount ranging from $1,000 up to $100,000. It enables the applicant to fulfill all their desires, along with restoring any frail economic condition.

7. Personal loans offer a flexible alternative to business owners having difficulty securing traditional fixed-term bank finance.

8. Personal loans come in handy in emergencies and can help you when a large sum of money is required.

9. You can build a robust credit profile for the future with timely repayment of personal loan EMIs.

10. Personal loans are more affordable than you think in terms of interest rates and monthly EMIs.

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Important Points To Remember About The Personal Loan

What Should You Know About The Personal Loan

1. Ask yourself the following questions before taking a personal loan – Do I really need the loan amount? Is there any other alternative I can opt for instead of taking a personal loan? Which bank or financial institution has easy T&C for taking loans? Will I be able to return the money in the given time frame? Whether the Repayment schedule is comfortable with my earnings?

2. Before taking a personal loan, the first thing that you should know is that it’s the most highly-rated loan. The maximum rate of interest is charged on personal loans as compared to all other personal segment loans. Don’t just take a personal loan without any solid reason. Take it only if you actually need it. Do not take personal loans unless in case of an emergency such as paying hospital bills in a medical emergency, marriage, etc.

3. A personal loan taken for vacation or to buy a fancy gadget is a strict no. Also, don’t purchase property or a car through a personal loan. As interest rate in home loans and car loans is very low. Consider your needs rather than eligibility while borrowing a personal loan.

4. Banks are probably one of the first places that come to mind when you think of where to get a loan. But they’re not the only type of financial institution that offers personal loans. Credit unions, consumer finance companies, online lenders, and peer-to-peer lenders also offer loans to people who qualify.

5. Personal loan interest rates can vary from lender to lender and it’s negotiable. The interest rate depends on the credit score and eligibility criteria. Check out the interest rates on personal loans in the market and get the lowest rate by comparing the interest rates offered by various lenders.

6. You must read the terms and conditions of the personal loan before signing the form. Look at the interest rate. Calculate how much your payments will be and verify that you will be able to make those payments every month. Do discuss this with your banker before applying.

7. Maintain a good credit history and check your credit score. Your credit score represents your creditworthiness. A low credit score can either get your loan application rejected or the banks may increase the interest rate.

8. Avoid add-on offers and plans. Do not fall for add-on offers such as accidental insurance plans. There will be many add-on offers. Learn to say “NO” to such offers.

9. The tenure for personal loans usually ranges between 12 to 60 months. Opt for a suitable tenure as per your financial capability.

10. Access all costs. Consider various fees such as processing fees, late payment fees, prepayment fees, etc.

11. Borrow only as much as you need and not more.

A Personal Loan Might Be A Good Idea Sometimes

Personal loans can be useful, given the right circumstances. For example, most people can’t afford to pay cash for a home, making a mortgage loan a necessity. Personal loan funds can be used anywhere without justifying or clarifying your usage. It can be used to cope with any emergency situation or an urgent need.

However, using it freely doesn’t mean the money is yours, you need to return it within the mentioned period of time. That’s why you should take a personal loan for yourself if you are in dire financial need. Yes, we strongly recommend that opt for a personal loan only if it’s for your needs and not your wants.

Every so often, in your life, you will feel you have less money and you will have options like personal loans or credit cards. But remember if it’s your need of the hour, you should consider them but if it’s your want, it’s better to avoid them altogether.

Because they could prove a great financial burden later. Be sure to consult with a trustworthy financial institution, financial consultant, or planner, and weigh your options.

“Money without brains is always dangerous.”

– Napoleon Hill