If you want to apply for a personal loan but don’t know where to start from, this ultimate guide will help you understand everything you need to know.
What is a Personal Loan?
A personal loan is a type of loan that does not require you to provide collateral, such as property or gold. You can get this loan usually based on factors like your income, credit score, and existing debts.
However, as it is an unsecured loan, the interest rate may be higher than other types of loans that require security.
You can use personal loans for multiple purposes, such as medical expenses, travel, or even debt consolidation. The repayment is done through fixed monthly instalments over a set period.
Types of Personal Loans
Personal loans too can be categorised based on their repayment periods approval time. Here are some common types of personal loans:
Personal Term Loan
This is a standard loan where you can borrow a fixed amount and repay it over a set period with fixed monthly instalments.
Flexi Personal Loan
A Flexi Personal Loan provides a pre-approved loan amount that you can withdraw from as needed, and interest is charged only on the amount you withdraw. Some Flexi Personal Loans allow you to initially pay only the interest and repay the principal later at the end of the tenure. But this feature is not universal, so it’s important to check with the lender. This type of loan can be particularly beneficial if you need immediate financial support or face fluctuating income.
Instant Personal Loan
As the name suggests, this type of loan gets approved quickly, sometimes within minutes, and hence is called Instant Personal Loan. It is useful to fulfil urgent or emergency financial needs.
Short-term Personal Loan
This loan has a short tenure, usually between 3 to 18 months. It is good for smaller financial requirements that you will be able to repay quickly.
Pre-qualified Personal Loan
A lender may offer you a pre-qualified loan based on your financial profile. This means you might be eligible for a loan, but final approval depends on further checks. Such loans take less time to get sanctioned and do not affect your credit score.
Why Choose a Personal Loan?
A personal loan can be helpful in many situations. Some common reasons people apply for personal loans include:
Debt Consolidation
You can combine your multiple existing high-interest loans or credit card balances into one loan with a lower interest rate.
Emergency Expenses
It can help you cover urgent financial needs like paying medical bills, getting car repairs, or home repairs.
Home Renovation
A personal loan is an easy way to fund home renovations such as fixing leakages, expanding rooms, etc.
Education
It can help pay for tuition fees, books, or other educational costs.
Luxury Purchases
If you need to buy furniture, electronics, or appliances, a personal loan can make it more manageable.
Wedding Expenses
If savings are not enough to cover the total wedding expenses, a personal loan can help cover wedding costs. These costs can include paying off catering bills, renting a wedding hall, and covering other miscellaneous expenses.
Business Startup
If you are starting a small business, such as setting up a small fruit cart, a street food point, etc, a personal loan can be a good funding option.
Building Credit
Regular and timely repayments can improve your credit score, making it easier to get loans in the future.
Features of Personal Loans
Some key features of personal loans include:
You can borrow an amount up to ₹50 Lakhs
Interest rates can start at 9.99% per annum and hence are an affordable financing option
No need to provide security like property or gold
You can use the loan for any financial need, such as medical emergencies, weddings, or travel
You can choose between a term loan or a flexi loan, depending on your suitability
Lenders usually offer transparency, ensuring there are no unexpected costs
Checking Personal Loan Eligibility
Before applying, use a personal loan eligibility checker to see if you qualify. This tool helps you understand the loan amount you can get based on your income and credit score.
Personal Loans vs. Other Loans
| Feature | Personal Loan | Home Loan | Car Loan |
| Collateral Required | No | Yes | Yes |
| Usage Restriction | No | Yes | Yes |
| Processing Time | Quick | Longer | Moderate |
| Interest Rate | Higher | Lower | Moderate |
Final Thoughts
A personal loan can be a useful funding option if managed well. Make sure to borrow only what you need and choose a repayment plan that suits your budget. Compare different lenders before making a decision to get the best deal.
If you plan wisely and repay on time, a personal loan can help you manage your finances effectively.
