New Delhi : Lower interest rates, ease of access compared to other lending choices, and the absence of a collateral requirement have all benefited personal loans. Furthermore, its low documentation and speedy disbursement have made it the most popular choice among borrowers for financing lifestyle aspirations and financial shortages. Here are some of the main reasons why personal loans are becoming popular:
There is no end-use restriction
The proceeds of a home, business, or auto loan are used to address specific financial needs. Personal loan proceeds, on the other hand, can be used to finance a variety of purposes, including medical expenses, education, vacations, weddings, home improvements, and house additions. The personal loan can be used to consolidate debt, buy new electronics, or cover other expenses.
No security or collateral is needed
Personal loans are unsecured, which means that borrowers do not have to submit any collateral or security to obtain the loan. Instead, lenders consider personal loan applications based on the applicant’s net monthly income, occupation, and credit score. Lenders take on more credit risk when they offer personal loans without collateral or security, which forces them to adhere to strict standards during the personal loan approval procedure.
Quicker loan processing and disbursement
Personal loans are faster to process and disburse than other loan products such as vehicle and home loans. When applying for a personal loan offline, the majority of banks and NBFCs promise that it will be financed within a few business days.
Digital onboarding enables lenders to offer same-day loan disbursements through online processes. This personal loan function has been quite beneficial to folks who require instant finances.
Cheaper than credit cards
Personal loans normally have cheaper interest rates than credit cards. Personal loans are typically available at lower interest rates from private lenders and some public sector banks. Credit card interest rates often begin at 40% per year for outstanding balances. These fees may be even higher for cash withdrawals done using a credit card.
Minimal to no documentation
Personal loans require less documentation than home loans, loan against property, or other secured loans. To establish domicile, income, and identification, applicants must submit certain documentation to their banks or NBFCs. With the exception of income proof documents, both paid and self-employed candidates use the same set of documents for residence and identification evidence.
For example, in the case of personal loans for salaried personnel, applicants must present salary stubs and bank account statements from the previous 3-6 months as proof of income. Self-employed candidates must provide income tax returns, an audited balance sheet, and a P&L account statement for the last two years. Pre-approved personal loans issued to existing clients typically do not require new documents because the customer’s KYC information is already in the lender’s database.Pre-approved offerings.
Many lenders offer pre-approved personal loans to qualified consumers with solid credit histories and decent credit profiles. Banks and NBFCs typically provide rapid or same-day loan disbursements for pre-approved personal loans, with minimal to no documentation required.
