Things to know when applying for a personal loan
Are you running out of cash? Want to take your family for a dream vacation? Need funds immediately to satisfy your expenses? A personal loan can be a saviour. Some people may need funds now and then, which is when personal loans can come in handy. These are the loans provided by financial institutions for personal or economic reasons. The lender has no restriction on how you would use the funds; you can use them for home improvement, vacation, wedding, etc. Opting for such loans is the best resort when you need funds and don't want to go through the lengthy process or put your valuables for collateral.
Several benefits come with a personal loan- they are easier to qualify for, the process to get money is not too long, and there is a fixed loan term. Having fixed loan terms ensures that borrowers can deal with their economic concerns and pull themselves out of their financial dilemma.
Personal loans- Secured or unsecured?
The personal loan market is huge and so competitive that everyone can now avail of these loans and customise them per their needs. You can opt for a secured and unsecured personal loan; however, few lenders categorise personal loans as unsecured. When the loan is not protected or backed up by anything except the borrower's signature, it is considered an unsecured loan. The primary characteristic of a personal loan is no collateral. That means you can still apply for these loans even if you do not have a car or home.
However, lack of collateral or security with unsecured loans means high-interest rates in loan borrowing terms. This makes secured loans much more viable as they have comparatively low-interest rates. Low-interest rates for secured personal loans are because the security is being offered for their approval.
Who is eligible for personal loans?
The eligibility criteria for different types of loans may differ from one financial institution to another based on their perception of the risks associated with such loans. However, nearly all lenders divide the potential borrowers into three categories:
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- Salaried individuals
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- Self-employed professionals
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- Self-employed individuals
Besides this, the other factors considered when granting loans are work experience, repayment capacity, age, residence, past obligations and place of work. When applying for a personal loan, you need the least number of documents, making it faster. Typically, the bank or lender will require your proof of identification, residence, income, and 3 to 6 months of your bank statements. Some lenders may require guarantors along with the mentioned documents.
Taking out personal loans at low-interest rates
Low rates are not the only factor to consider if you plan to take out a personal loan. Factors such as the processing fee, government taxes, prepayment charges, charges for late payment, services taxes, and check return charges. Choose a plan with the least cost that best suits your economic status and should be easy to repay.
Personal loans at low rates can be possible by assuring the lender that you can repay the loan. Before approving a loan, the lenders will assess your ability to repay it. For low rates, three simple prerequisites need to be satisfied:
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- Having full-time employment with a reputable organisation and at least two straight years of work experience with the same organisation is recommended.
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- Having a good credit history with zero debts and unpaid credit card bills.
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- Having an asset such as a house.
Thus, you must do the groundwork to satisfy these three conditions to take out a personal loan at low-interest rates.
