In today’s world, personal loans are extremely popular among people who need immediate funding for various purposes. Personal loans are an unsecured form of credit that can be availed by individuals for fulfilling their diverse financial needs. With the increasing demand for quick funding, personal loans have become one of the most sought-after financial instruments in the market. However, when it comes to borrowing money, it is essential to understand the dos and don’ts of personal loans to avoid any financial constraints. In this article, we will discuss the various aspects of personal loans and the best practices to follow when availing them.
What Is a Personal Loan?
A personal loan is a type of loan that an individual can avail without providing any collateral. These loans are disbursed based on the borrower’s creditworthiness and ability to repay the loan amount. Personal loans can be used for various purposes such as medical emergencies, education expenses, travel, home renovations, debt consolidation, and many more. Personal loans usually have a higher interest rate than secured loans such as home loans or car loans, as the loan is unsecured.
How Is It Different from Other Loans?
Personal loans are different from other loans such as home loans or car loans in the following ways:
1. Collateral: Personal loans do not require collateral, whereas home loans and car loans are secured loans that require collateral.
2. Amount: Personal loans have a lower loan amount than home loans or car loans, which are offered for higher amounts.
3. Interest rates: Personal loans have higher interest rates than home loans or car loans.
4. Tenure: Personal loans have shorter tenure than home loans or car loans.
Dos and Don’ts of Borrowing Money Using Personal Loans
Dos:
1. Plan repayment: Personal loans come with a repayment tenure ranging from 12 months to 60 months. Hence, you should plan your repayment schedule accordingly to ensure that you can repay the loan within the stipulated time frame.
2. Check your credit score: Before applying for a personal loan, you should check your credit score as it plays a crucial role in the approval process. A good credit score increases your chances of getting the loan approved and reduces the interest rate offered.
3. Compare interest rates: You should compare the interest rates offered by different lenders to get the best deal. Many lenders offer personal loans at attractive interest rates, and comparing them can help you save money in the long run.
4. Check the eligibility criteria: Before availing of a personal loan, you should check the eligibility criteria of the lender to ensure that you are eligible for the loan.
Don’ts:
1. Do not borrow more than required: Personal loans come with a high interest rate, and borrowing more than required can lead to a higher EMI payment. Hence, you should avoid borrowing more than what you need.
2. Do not apply for multiple loans: Applying for multiple loans at the same time can negatively impact your credit score. Hence, you should avoid applying for multiple loans simultaneously.
3. Do not ignore the fine print: Before availing of a personal loan, you should read the fine print carefully and understand all the terms and conditions of the loan to avoid any hidden charges.
4. Do not miss the EMI payments: Missing the EMI payments can lead to huge penalties and negatively impact your credit score. Hence, you should ensure that you make timely payments to avoid any financial constraints.
Options Available in the Indian Market
The Indian market has various options when it comes to availing a personal loan. Some of the options available are:
1. Banks: Many banks offer personal loans at attractive interest rates and flexible repayment options. Banks also have stringent eligibility criteria that a borrower needs to fulfil to avail of the loan.
2. Non-Banking Financial Companies (NBFCs): NBFCs offer personal loans at a slightly higher interest rate than banks, but they have lenient eligibility criteria. NBFCs also offer instant loan lending apps that make the loan application process quick and easy.
3. Peer-to-peer lending platforms: Peer-to-peer lending platforms offer personal loans at attractive interest rates, and the loan application process is entirely online. Peer-to-peer lending platforms also have flexible repayment options and lenient eligibility criteria.
Criteria for Availing a Personal Loan
The eligibility criteria for availing of a personal loan vary from lender to lender. However, some of the common criteria for availing of a personal loan are:
1. Age: The borrower should be between the age of 21 years to 60 years.
2. Income: The borrower should have a stable income source.
3. Credit Score: The borrower should have a good credit score.
4. Employment: The borrower should be a salaried or self-employed individual.
5. Documents: The borrower should have all the necessary documents such as income proof, identity proof, address proof, and others as may be required by the lender.
Personal Loans for Low CIBIL Score
A CIBIL score is a three-digit credit score that reflects the creditworthiness of an individual. A low CIBIL score can negatively impact the chances of getting a personal loan approved. However, there are some personal loans for low CIBIL scores. Some of the options available are:
1. Improving the Credit Score: Individuals with low CIBIL scores can take steps to improve their credit score, such as paying off their outstanding debts and credit card dues in a timely manner.
2. Opting for a secured loan: Individuals with low CIBIL scores can opt for a secured loan such as a gold loan or a loan against fixed deposit to increase their chances of getting the loan approved.
3. Availing of a joint loan: Individuals with low CIBIL scores can also avail of a joint loan with a co-applicant who has a good credit score to increase their chances of getting the loan approved.
Conclusion
A personal loan is an excellent option for individuals who need quick funding to fulfil their financial needs. However, it is essential to understand the dos and don’ts of borrowing money using personal loans to avoid any financial constraints. By following the best practices and choosing a reliable lender, individuals can avail of a personal loan to fulfil their diverse financial needs. It is essential to compare interest rates, eligibility criteria, and loan features before choosing a lender. One such reliable lender in the Indian market is the Bajaj Finserv App, which offers attractive interest rates, flexible repayment options, and a quick loan approval process.