As a consumer it is important for you to budget your loan amount, decide your requirements and allocate funds to meet these requirements before you take a personal loan. There are certain factors at play when you customize a personal loan to suit your needs. These loans do not need you to assign security or collateral against the amount and it can be utilized for myriad purposes deemed fit by you. The loan amount you can get approved depends on your eligibility which is based on your annual income. A personal loan can be repaid by means of monthly EMIs and the tenure of these loans typically last between one to five years. You must also know that rates of interest charged on personal loans are higher since they are not secured using any collateral or guarantor asset.
Easier to apply for it
Personal loans are also relatively easier to apply for as there is lesser paperwork involved unlike in case of secured loans. This is because the lending institution does not have to verify your assets. Once the income criterion is met with, it will take about three to four days to have the amount credited to your bank account.
Step by step method to applying for a personal loan
- It is of foremost importance to conduct research about the lending institutions that are offering the best rates as well as services. This can be done in the least time consuming manner by going on price comparison websites and checking the listings.
- Get in touch with the lender of your choice and try to negotiate so that you are offered the best personal loan
- Upon finalizing your lender, the direct selling agent may visit and collect your documents such as income proof, residence proof and identity proof. Sometimes you may also have to produce copies of Income Tax return, ration card, passport, salary slip, driving license and so on. The document list will vary in case of different lending institutions.
- In case of the offline process the above mentioned process will be followed by a field investigator visiting your home to cross check the data and facts provided in your documents. The cross checking will include visiting your home, finding out your workplace tenure, etc. It is integral to be home when this process is carried out, failing which your loan may get rejected.
- If the lending institution in consultation with its agents, is satisfied with the authenticity of your documents, your loan will be approved.
- The amount will then be disbursed through demand drafts and cheques.
Personal loans versus credit cards
In some cases consumers also go for credit card payments instead of applying for a personal loan. This could become quite an expensive offer if the amount withdrawn is not repaid quickly. Credit cards have high interest rates on cash withdrawals that range between 20%-40% annually. This is based on the type of credit card you are using. Charges are also levied on ATM withdrawals in case of credit cards. The sole benefit of a credit card over a personal loan is that you get an interest free period to repay your debt. This period, however, is very short but the additional costs of high interest rate and chargeable ATM withdrawals more than make up for these benefits.
Why personal loan is better
Personal loans have an interest rate ranging between 12%-22% as opposed to credit card’s 20%-40%. Unless you need cash within minutes of your transaction it is best to go for personal loans. You can repay at ease with the EMI scheme you have put in place and avoid the burden of fast repayment. Fast repayment burden comes with credit cards so as to avoid its exorbitant prohibitive rates of interest. Therefore, if you have three to four days’ time in hand within which to arrange for money a personal loan is the best option.