A person applies for a loan for a specific cause. It includes debt restructuring, wedding costs, medical emergencies, abroad travel and education costs, house improvement, etc.
The plus side of online personal loans is that there’s no need to give a reason. A lender may ask for the loan casually. The user can reveal the need for urgent cash. However, in most cases, a person’s reason for taking a personal loan is useless. Without reason, the loan can get approved. As the saying goes, “it’s personal,” and lenders know that. Let’s read on to find out the reasons for a personal loan.
Reasons One May Apply for a Personal Loan
Personal loans are taken for personal reasons. Hence, the purpose is not required to be written. If the loan’s value is high, lenders ask about the purpose. Also, they may suggest a better loan category based on the borrower’s needs.
For example, a medical loan, an education loan, etc. The purpose of the personal loan will not affect the interest rate. Here are some of the usual purposes of personal loans:
- Health issues
Medical bills can pile up at any time. And one must clear them in time to continue their check-up. There are times when health bills might become costly. In such times, personal loans are helpful. They are hassle-free and easy to acquire.
Personal loan interest rates are at an all-time low these days. It is all the more reason to go for this loan. It is advised to take loans rather than spend the savings.
Every parent wants to provide the best possible education for their child. There may be times when the funds fall short. In such a case, they can supplement their child’s studies by opting for a personal loan. If you do this, the child’s tuition won’t be late, or worse, they won’t have to drop out of school for a semester.
- Funding major milestones
Online personal loans help with many major causes. It can be a move to another city or a wedding, where personal loans can make things easier. What’s more, many institutions extend personal loans with lower interest rates. They have relaxed the criteria for loan approval.
- New business setup
The lack of capital can put a halt to any business plan. A personal loan can help with the plan and the money needed in such a case. It will help users either launch or expand the firm.
A new company may not have the financial books or tax records to qualify for an online personal loan, but the option to apply for a loan remains open. Therefore, since personal loans are much simpler to obtain, they would be the best action to take.
- Home renovation
Buying a new home or renovating the current one requires serious cash. Due to emotional attachment, many users opt for renovation. While updating a home may be high on a person’s wish list, the shortage of money may force the project to be put on hold.
Factors Considered by Lenders Before Approving an Online Personal Loan
- Credit Score
A user’s credit score is crucial in approving an online personal loan. It helps lenders track the payment habits of the user. The credit score depends on how the user has previously managed their credit. The thumb rule is that the higher the credit score, the better the chances of getting the loan approved. If the payment record is good, then loan approval is easy.
- Repayment Schedules
Lenders prefer shorter repayment cycles. A shorter payback period means that the lender can get the loan back. However, the payback period should not be too tight. It may reduce monthly EMIs. This point should always be kept in mind.
- Personal Loan Documentation
All the legal papers should be in order. At the time of application, legal papers will be requested, such as a PAN card, photo proof, address proof, and financial papers. The loan officer will check all the papers to make sure they are legal. If there is any mistake or criminal case, then it is likely that the loan will be rejected. Whether the user has a job or works for themselves, they can change the documents they need to bring.
- Employment Background
A borrower with more work experience will have the edge over a new hire. While getting the loan, a new startup may face some issues. However, the period of work-life changes with many factors. There is a general mindset that business owners need five years of work experience to qualify. This criterion is easy for salaried employees. They only need three years of work experience.
- Age of the Applicant
Age is one of the factors on the list. It shows the financial situation and cash flow of the individual. If the applicant is in their early twenties, they will not earn as much. The same is true for people over the age of 60. Personal loans are available from banks to people aged 25 to 55.
A Few Points to Note Before Applying for Online Personal Loans
- Conduct proper research before applying
Think about the bank giving loans with simple terms and low-interest rates. Even though most banks have similar rules, some may be more flexible and have less strict penalties. Before choosing a loan, people should always do proper research.
- The chosen lender must offer low-cost EMIs
One should choose EMIs that are easy to pay each month without the risk of penalties. An EMI calculator can be used to find a result based on the loan amount, interest rate, processing fee, pre-payment options, and loan tenure.
- Always keep other options open
Personal loans are not always the only way to get out of a jam. If the amount is not too large, one can ask family and friends for a loan. This eliminates the need to pay interest rates; even if someone pays them off early, it won’t cost them anything.
The applicant should know that personal credit or loans are not insured. It means that no security measures are required. Proper documents and a good credit score are the most important.
For more details on an online personal loan, visit Piramal Finance and look at their products and services.
Also Read: Types of Personal Loan Interest Rates