Lending institutions have become highly customer-centric as the propensity to consume has increased among the salaried class. People don’t have to wait in long queues to avail of loans. Instead, they can visit the lender’s website to obtain the necessary information. It makes it easier for them to compare loan offers and make the right choice. A personal loan is among the most popular loan options. The benefits offered by a personal loan are immense, and digitization has made it convenient to apply for one. Let’s see what personal loans entail and the benefits they offer.
What are personal loans?
Personal loans fall under the unsecured loan category, meaning one doesn’t have to pledge any collateral to obtain the loan amount. Also, there are no restrictions imposed on the fund’s usage. The borrower is free to use the funds however they deem fit. However, it is essential to check and assess the eligibility requirements set by the lender to obtain the loan. These criteria help the lending party weed out bad borrowers who are less likely to repay the loan amount. It helps them reduce bad debts.
Why are personal loans trending?
Now that we have a fair idea of what personal loans entail, let us see why personal loans are trending.
No restrictions on usage
One of the biggest advantages of personal loans is that there are no restrictions on the fund’s usage. Personal loans are versatile and can be used for various purposes, making them an attractive option for many borrowers. Some common uses of personal loans include consolidating high-interest debt, funding home improvements, covering unexpected medical expenses, paying for a wedding or other special event, or providing a cash cushion for emergencies.
Unlike other loans, such as a car or home loan, personal loans do not have a specific usage. It makes them an excellent choice for borrowers who need financing for multiple reasons or are unsure how much they will need upfront. Personal loans can also be customized to suit individual needs, ranging from a few thousand rupees to several lakhs.
Ease of approval
The second most important reason why people avail of personal loans is the ease of approval. Modern-age lending institutions like Fullerton India have made it easier than ever to apply for a personal loan online and receive quick approval. Many lenders offer instant approval, with funds disbursed within a few days or even hours of submitting the loan application. It can be especially helpful in emergencies or when unexpected expenses arise.
The quick approval process for personal loans is due to the use of technology to assess borrower creditworthiness. Rather than relying solely on traditional credit scores, digital lenders may consider factors such as income, employment history, and spending patterns to evaluate borrowers’ ability to repay the loan.
Low cost of borrowing
The cost of borrowing funds is denoted by the interest rate being charged. A higher cost of borrowing can deter many borrowers. In the past, personal loans were often considered high-risk loans and came with high-interest rates. However, with the rise of digital lending institutions and increased competition among lenders, personal loan rates have reduced significantly in recent years. It has made personal loans more affordable for borrowers, especially compared to other forms of high-interest debt, such as credit cards.
It’s worth noting that interest rates on personal loans can vary depending on a borrower’s credit profile and other factors such as loan amount and repayment tenure. Therefore, comparing rates from multiple lenders before choosing a personal loan is important to ensure you get the best deal possible.
Personal loans are unsecured, meaning they do not require any collateral or security from the borrower. It can be a significant advantage for borrowers who do not own valuable assets or are uncomfortable pledging them. With no collateral required, personal loans are more accessible to a broader range of borrowers, including those with lower incomes or fewer assets.
Convenient repayment options make personal loans popular among the masses. Personal loans offer flexible repayment options, including the ability to choose the loan tenure that best fits a borrower’s financial situation. Some lenders offer loan tenures ranging from as little as 6 months to as long as 5 years or more. This flexibility can help borrowers manage their monthly payments and avoid financial strain.
The above points show why personal loans have gained popularity. It is advisable to compare the offers from reputed lending institutions and make an informed decision depending on your specific requirements.