Most Common Reasons Why People Apply For Personal Loan

A personal loan is money you borrow from any bank or financial institution.

These are unsecured loans. They have fixed monthly repayment methods.

Anyone can apply for personal loans. But the criteria based on which banks provide personal loans are employment history, income level (or proof thereof), and repayment capacity. Also, your profession and credit history affect the loan too.

A personal loan is a multiple-personal loan. One can use it for any emergency need for funds. These loans are becoming highly popular among people for their easy process and disbursement.

Advantages of a Personal Loan:

There are several reasons why people apply for a personal loan. Here are a few of them:

• Easy and quick approval: Compared to other loans, personal loans have quick approval and disbursal, generally up to 48 hours. You need to have a strong credit history. And that’s all! You are good to go.
• No collateral required: As these are unsecured loans, the borrower didn’t need to provide collateral to get this loan. A large audience for this benefit prefers a personal loan.
• Flexibility: With personal loans, you can utilise the funds for any immediate requirement. You can use these funds for anything, including home improvements, marriage, or a medical emergency.
• Minimum Documentation Required: One of the most common reasons people avail of personal loans more than other loans is that they require much less documentation.
• Attractive interest rate: You can get a personal loan at attractive rates depending on which lending partner/bank you take it from.
• Boost your credit score: You can improve your credit score by taking out a personal loan and repaying it on time.
• Flexible Tenure: The repayment schedule of personal loans is flexible, up to 84 months. You can select the duration based on your needs.
• A high amount of availability: Personal loans can be available for as much as INR 50 lakhs. However, the maximum amount you can borrow depends on your credit score. Your income level and other factors like debt capacity affect the amount.
• Tax Benefits: Depending on your usage of funds from a personal loan, you can also claim tax benefits. For example, if you are purchasing a new home or renovating an existing one, you can claim tax deductions under Section 24(b) of the Income Tax Act of 1961.

Personal loans have become one of the top choices of borrowers due to their quick and easy application process, lack of collateral, and minimal documentation.

Reasons why people apply for a personal loan:

• Debit coalition: Generally, people apply for personal loans to pay off their other multiple loans and credit card payments and collate them into one monthly payment. Also, people use their funds from personal loans to pay off their credit cards to get lower interest rates. They can save the interest and time it would take to pay off the entire amount this way.
• Medical Emergency: In case of any emergency, you need instant funds, and in case of hospitalizations, you need a hefty amount. So in such cases, people prefer personal loans for their easy, quick, and hassle-free disbursal.
• Home upgradation: People also use personal loans for renovating their homes. Renovating your home isn’t easy, requiring a lot of effort and funds. Personal loans come to your rescue in such times.
• Packing and moving: Shifting your home requires a lot of cash for petty expenses. People prefer taking personal loans to meet these requirements for shifting their homes, mostly over long distances.
• Wedding expenses: Whether a bride or groom, their parents, or some close relatives are involved, a wedding comes with many unexpected costs that somehow burst out of the budget. In such times, people apply for personal loans.
• Vacation: Vacations can be planned or sometimes unplanned, but the cost of luxury experiences sometimes falls short of the budget. People take a personal loan for their immediate requirements and repay them later as per their capabilities. You can opt for a personal loan if you don’t have to compromise on a vacation.
• Personal/household purchases: Apart from these reasons mentioned above, people also apply for personal loans to purchase some appliances and electronic items for their household or to cover their automotive repairs. They don’t have to pay a huge amount altogether, as they can pay monthly EMIs at their convenience.

You can apply for personal loans in your preferred banks or financial institutions for any similar needs.

The interest rate for a personal loan

The personal loan rate of interest ranges from 7.90% p.a. to 49% p.a. It depends on your credit profile.

After that, the bank you are borrowing from, the amount you choose, your credit score, and your repayment tenure determine the rate of interest for your loan.

How do I get the best interest rate on a personal loan?

• Maintaining a high credit score: Your credibility is the first factor that matters to banking institutions when determining your interest rate. You can maintain your credibility by improving your credit score.

• Avoid escaping a repayment: Always avoid missing any repayment for a loan or credit card, as it might affect your credit score negatively. Keep a check on all your EMI dates and keep the funds allocated in advance to avoid any late payments.

• Keep checking offers: Banks/financial institutions usually offer a lower interest rate during festival seasons. You can grab the offer and apply for personal loans.

• Interest rate comparison: Before applying for a personal loan, you should always compare the interest rates offered by various banks and institutions. You can choose the best bank based on the lowest rate offered and the highest credibility of the bank.

• Negotiation: You can always ask for a better interest rate from the bank executive. If you have been associated with a bank for a long time, they will surely provide you with the best offer as requested.

If you are a beginner with no idea about personal loans, this information must have introduced you to the basics of personal loans, why people prefer them, and the interest rate. For more information on personal loans, check out Piramal Finance today!