It is easy to get overwhelmed when there are several options in the market to avail credit. As choices mount, choosing among the available options becomes difficult, especially for consumers with limited financial knowledge.
Worry not! This article serves as the one-stop solution to all your queries. We discuss why personal loans are better than other credit options and how one can easily avail of instant personal loans online.
What Are Personal Loans?
Personal loans come under the category of retail loans and what sets them apart is the fact that there is no need to pledge collateral. From a lender’s perspective, it is a high-risk investment, but for the borrower, it is extremely convenient. No wonder, personal loans are among the most popular forms of credit.
The feature sets them apart from home loans, auto loans, gold loans, etc. Besides, the interest rates are relatively lower than credit cards, so one can leverage them to cover expenses such as vacations, education, weddings, or paying off credit card debt. It is not uncommon for entrepreneurs to use personal loans to bridge the working capital needs.
Features of Personal Loans
Borrowers can avail up to 25 lakhs as principal amount to meet their immediate and future needs. It depends on the personal income and the credit rating of the borrower.
A personal loan provides the flexibility of tenure. The borrower can adjust the loan payback period according to their needs and budget.
No Collateral Requirement
Because personal loans are unsecured, the borrower need not provide any collateral. It is a fantastic feature as it eliminates the need for an applicant to contemplate mortgaging any asset of value.
Low Documentation Requirement
A personal loan requires far fewer documents than a home loan. One only needs to supply proof of income, identification, address, and passport-size photographs. These documents can be submitted and confirmed online without the applicant leaving the house or meeting with a financial institution’s representative. It helps speed up the procedure of granting loans while also conserving a lot of paper.
There is a significant difference between personal loan interest rates and credit card interest rates. Since personal loans attract a lower rate of interest, repayment becomes much more manageable. Besides, unlike credit cards, the repayment is for a predefined tenure, which allows for better financial planning.
The lender can disburse a personal loan within a few hours after authorization of the application. If a borrower can get a pre-approved loan offer, turnaround times can be as little as a few minutes.
Why Is Opting For A Personal Loan Wiser?
A personal loan is considered the most accessible type. The borrower’s income and CIBIL score are two of the most crucial factors that are considered. It is because they are essential in determining the creditworthiness of the borrower.
If the lender is satisfied on both grounds, then it is likely that the loan will be disbursed quickly by the bank.
Borrowers can take a personal loan to consolidate their debt obligations. Let’s assume that a person has a sizable short-term debt. Some of it could be high-interest credit card debt attracting huge monthly minimum dues with no end in sight. It, therefore, makes financial prudence to combine such debt into a single medium-term commitment through a personal loan.
The advantages of such debt consolidation are several and are not limited to lower interest rates. The ability to repay promptly and a widened debt-equity improves credit scores drastically. Plus, it makes money management much simpler and easy to manage.
Credit card loans are usually short-term. One can lower their debt by taking out a five-year personal loan. As a result, the blend is more balanced.
Financial institutions will see the borrower as a trustworthy creditor who can meet long-term financial obligations. It also serves another purpose: Taking out a personal loan can help borrowers cut down on their credit card usage. Of course, it also means that you must refrain from impulsive splurging via your credit card. Else, all the debt consolidation would be to no avail.
One can put money aside for big-ticket purchases. Assume a person wishes to replace his furniture, or perhaps purchase the most recent iPhone. He can take advantage of the seller’s credit card EMI plan.
However, there is a better option: take out a personal loan and pay the vendor in cash. One should make large purchases with their credit card only if the scheme is interest-free, and that is not often the case in the prevailing market scenario.
The borrower should remember that paying with a credit card comes with several additional fees. One should closely compare the costs of taking out a personal loan and using a credit card.
A borrower can use personal loans for various purposes like paying for a medical emergency or funding educational needs – even marriages, travel, and home renovation.
Why Are Personal Loans Better Than Other Credit Schemes?
Credit Card Advance
One can receive a short-term cash loan from a bank or an ATM using a credit card. Credit card advances are an easy and quick way to get cash in hand, but they are not cheap.
The borrower will pay higher interest rates, and cash advance fees can be as much as 5% of the amount borrowed.
These are unsecured loans and repaid in their entirety using the upcoming pay-check rather than in installments. The loan amount usually ranges from a few thousand rupees or less.
Payday loans are high-interest, short-term loans. When borrowers cannot repay their first loan, they frequently take out more loans, locking them in a debt cycle. As a result, interest rates quickly climb, and loans with APRs in the triple digits are not uncommon.
It is, therefore, necessary to plan payday loans well, and all efforts must be made to diligently pay them off. If managed well, they can help you immensely to bridge the salary gap at the end of the month. Financial discipline is the key. Also, payday loans have one of the highest approval rates. In other words, when the need is urgent, nothing can come as handy as a payday loan.
How to Avail Of Instant Personal Loans?
- Offline: Physically visiting any public or private bank branches. The process is tedious and takes several days to complete.
- Online: Fin-techs are on the rise today. You can look for digital banks that approve instant personal loans without much paperwork. Fill out all the essential KYC information on the lender’s website digitally. Your loan will likely get approved in minutes.