No-end use restriction
Those availing secured loan options like home loans and car loans can only use the fund proceeds to meet specific financial requirements like home purchase/construction or to buy a car. However, personal loan borrowers can use the loan amount for any purpose including travel, education, wedding, medical expenses, home renovation, debt consolidation, etc. Borrowers can also use the funds availed from personal loans to meet their day-to-day expenses.
No security or collateral required
Unlike those availing home loans or car loans, personal loan applicants are not required to furnish any collateral or security to avail the loan. Lenders approve personal loan applications on the basis of their applicants’ credit score, net monthly income, occupation profile, employer profile, etc. The unsecured nature of personal loans increases the credit risk for lenders who in turn, adopt a very stringent approach while assessing personal loan applications.
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Faster loan processing & disbursals
The loan processing, approval and disbursal time for personal loans is usually faster when compared to other lending products, something that consumers find useful, especially during financial emergencies. Most personal loan lenders claim to disburse the loan within a week of making the final application with the bank/NBFC through offline mode. Many lenders offer personal loans with 100% online processing right from loan application to final disbursal in the borrower’s account, thus reducing the turnaround time to a few days.
Pre-approved offers
Many lenders offer pre-approved personal loans to their select existing customers having good credit profiles. Some lenders also offer pre-approved personal loans to their existing customers at concessional interest rates. Personal loan lenders usually offer pre-approved loans with instant or same-day loan disbursals and zero/minimal documentation. Therefore, customers should reach out to their existing lender(s), with whom they have any deposit or lending relationships, to check if they are eligible for availing pre-approved personal loans. If yes, then they can use those pre-approved personal loan offers as a benchmark to compare with the pre-approved offers from other lenders through online financial marketplaces.
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Lower interest rates than credit cards
Lenders offer personal loans at lower interest rates compared to the finance charges levied on credit cards. The interest rates offered by private lenders for their personal loan schemes usually start from 10.49% p.a. Some public sector lenders may offer personal loans at lower rates of interest. In the case of credit cards, the card issuers usually levy finance charges of 40% p.a. and above on unpaid dues. The interest rates may be even higher in case of making cash withdrawals through your credit cards. Although lenders may offer lower interest rates on loans against credit cards and EMI conversions compared to the finance charges levied on unpaid credit card bills, the interest rates would still be higher than the personal loan interest rates.
Flexible repayment
The loan tenure for repaying your personal loans usually extends up to 5 years with some lenders offering higher tenures of up to 7 years, thereby allowing borrowers to repay their loans in easy EMIs. Note that loan applicants can choose shorter loan tenures to help repay their personal loans faster and therefore, incur lower interest costs. Choosing longer repayment tenures will reduce the monthly payments and help applicants reduce their EMI burden. However, loan applicants opting for longer repayment tenures will end up incurring higher interest costs.
Minimal documentation
Lenders usually require their personal loan applicants to furnish documents for establishing their identity, income and residence proof. Lenders usually do not require fresh documentation for pre-approved personal loans as such loans are usually offered to their existing customers. Many lenders are also offering personal loans with an end-to-end digital onboarding process, wherein the loan applicants can upload the required documents online without having to visit the branch for submitting physical copies of their documents.
