What is a Personal Loan?

Personal loan is one of the most common products offered by banks. Here is everything you need to know about them.

Personal loans can help you finance anything at lower interest rates than credit cards. It is, therefore, not surprising to see people looking for answers to what is a personal loan and what are personal loan interest rates.

Personal loans offer a line of credit. A personal loan, unlike a credit card, provides borrowers with a one-time cash payment. Then, over the course of the loan's duration, borrowers pay back that extra amount of interest and personal loan amount in monthly instalments. There are countless quick, easy loan choices available thanks to peer-to-peer loans and internet lenders. Most of these processes require just under 10 minutes to file for on the internet.

However, based on how quickly the lender gets and evaluates your paperwork, the entire approval procedure could take up to one week.

What is a personal loan?
 

A personal loan is a financial arrangement in which a lender, typically a bank or a financial institution, lends you a specific amount of money for personal use. Unlike other types of loans that may be earmarked for specific purposes, such as a mortgage for a home or an auto loan for a car, a personal loan provides you with flexibility in how you can use the funds. The loan amounts are commonly used for various purposes, including travel and vacation, planning a marriage, debt consolidation, home renovation, or covering unexpected expenses.

You are required to repay the loan amount with interest as decided during the loan application, in fixed monthly instalments over a predetermined period. 

What is a personal loan used for?
 

A personal loan is a versatile financial tool that can be used for various purposes without constraints, such as:

• Debt consolidation
• Home improvements
• Education expenses
• Medical bills
• Travel
• Any unforeseen financial needs

Borrowers can get a lump sum of money that can be repaid in fixed monthly instalments, making it a flexible solution for achieving personal goals or managing unexpected expenses without the need for collateral.

What are the charges associated with personal loans?
 

Personal loans, at the very minimum, impose interest. Other fees may apply, such as an initiation or administrative charge deducted from your loan balance once you've been allowed, or a premature payoff penalty if you repay your loan well before the end of the period (making the lender miss out on future interest payments). According to the most recent data, the average two-year personal loan APR is presently at 10-12% per annum. In comparison, the current average annual percentage rate (APR) for credit cards is 36. %.

How do personal loans work?
 

Personal loans exist in many forms and can be secured or unsecured. Under a secured personal loan, you must provide security or an asset as collateral.. Secured personal loan product includes things like mortgages and car loans.

Unsecured loans do not require  any security as collateral. That is why these are among the most popular type of loans people apply for.. 

Personal loans are given as lump sum payments. The payment is credited directly to your savings bank account. In most circumstances, you will be obliged to repay the loan amount over time and at a set rate of interest. The repayment duration can vary from a year to  7 years, depending on the lender.

You can use personal loans to fund your varied requirements. From debt consolidation to marriage, personal loans can be availed for many reasons without constraints. It is one of the premier reasons self-employed and salaried individuals apply for personal loan to meet their urgent financial requirements.

How quickly can I get a personal loan?
 

With online applications, you can avail personal loans almost instantly, however, physical applications may take up to 7 days depending on the bank. The digital application process is quick, simple, and requires no physical documentation whatsoever. You can choose your loan amount and tenure based on your requirements and get instant approvals based on your eligibility and repayment capabilities.  Want to know how much loan you can apply for and repay it conveniently? Use the IDFC FIRST Bank personal loan EMI calculator and plan your finances effortlessly and quickly.    

What about tenure and personal loan interest rates?
 

• Loan tenures:

Personal loan tenures typically range from 1 to 5 years, but some lenders offer longer terms. You can choose a tenure that suits your financial situation and repayment capacity. Longer tenures result in lower monthly instalments, while shorter tenures lead to higher monthly payments.

• Interest rates:

Interest rates for personal loans vary based on your creditworthiness, lender policies, and prevailing market rates. Personal loan interest rates can be fixed or variable. Fixed rates remain constant throughout the loan term, while variable rates may change with market fluctuations. Your credit score plays a crucial role in determining the interest rate. Do keep in mind that higher scores often secure lower rates.

• Repayments:

Personal loan repayments involve monthly instalments, which include both the principal and interest amounts. The EMI (Equated Monthly Instalment) amount remains consistent throughout the loan tenure for fixed-rate loans. Early repayments are often allowed, and some lenders charge prepayment penalties. Missing payments can negatively affect your credit score and result in penalties, so it's vital to meet your repayment obligations promptly.

The details enumerated here should clear up questions you may have about what a personal loan is and how it works. IDFC FIRST Bank offers personal loans for several purposes including home renovation, marriage expenses, debt consolidation, and more. You can get a sizeable loan amount at low rates of interest starting at just 10.49% per annum. Also, if you apply for a personal loan online, you can get instant approvals through a completely paperless application and documentation. Apply now with our mobile banking app to get started! 




 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.