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What is a Personal Loan and How Does It Work?

· personal loan

A personal loan is a certain sum of money borrowed from a financial establishment which is repayable over a certain time span, known as the tenor. Such a loan can either be secured or unsecured.

A quick personal loan is the best option when you are in an emergency situation or need funds urgently. Moreover, these advances have zero end-use restrictions and are thus useful for a wide variety of purposes.

How Do Personal Loans Work?

Application: You will first need to apply for a personal loan. The required documentation is in line with existing KYC norms. Other basic documentation required to avail a personal loan irrespective of the lender include your salary slips or respective bank statements as proof of the same.

Choosing tenor: Various financial institutions offer differing loan tenors. The interest rates may differ with the tenor. It is advisable to choose a tenor based on your repayment capabilities.

How Long Will Fund Disbursal Take?

During emergencies, the expedience of fund disbursal is of high significance. Most lenders offer a 24-hour deadline for advances. However, some lenders may take up to a week or so. Note that disbursal depends on the amount you have applied for.

Interest Rates Applicable

Personal loan interest rates depend on a host of factors, including prevailing market economy, and the MCLR. Applicants can choose between fixed and floating interest rates while availing a loan.

Fees and miscellaneous charges

All quick personal loans have certain charges and fees, including prepayment penalties and handling or processing fees. These add an amount over and above the total amount repayable, which includes the principal and the interest accrued.

Uses of Personal Loans

Since personal loans have no end-use restriction, they can serve a variety of purposes. You can use the funds for a vacation, arrange for home renovations, pay medical bills or settle other emergency situations.

It is advisable to plan ahead for repaying a personal loan without any hassles.

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