Loans are a way for individuals to make purchases and financial decisions that they otherwise wouldn’t be able to because of the lack of capital. There are many different kinds of loans that individuals can go for, from auto loans that help people buy vehicles, to home loans that allow individuals to purchase houses. But one of the most popular types of loan is a personal loan.
What is a personal loan?
A personal loan is a type of unsecured loan that individuals can borrow from the bank for a number of different purposes. A personal loan allows individuals financial freedom. Personal loans are used for funding weddings, medical expenses, travel, and for purchases of goods and items. Personal loans are also known as consumer loans.
Personal loans are popular because they are unsecured loans, i.e. they do not require any collateral or security in order to be disbursed. A personal loan is instead granted on the basis of an individual’s employment history, repayment capacity, income level, and credit history. But as a result, interest rates for personal loans are usually much higher than other types of loans.
Unlike secured loans, where the amount of loan granted is proportional to the value of the collateral or security that is given to the bank, the amount of personal loans disbursed is dependent on the income level, profession and the overall loan application. Lenders usually only give loans where the monthly instalments from an individual do not exceed 40-50 percent of their monthly salary.
Also unlike other loans, a personal loan can be quickly granted. Personal loans need only proof of income (salary slip, bank account statement, ITR forms), proof of residence and identity proof for the loan to be granted.
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