Personal loan is one of the most popular products offered by banks. Here is everything you need to know about them.
Personal loans can help you finance anything with lower interest rates than credit cards. Therefore, it is not surprising to see people searching for answers about what is a personal loan and what are the interest rates on personal loans.
Personal loans offer borrowers a lump sum of money upfront, unlike credit cards which provide a revolving line of credit. Borrowers repay this loan amount plus interest over a fixed term through monthly installments. Today, numerous fast and convenient loan options exist, facilitated by peer-to-peer lending platforms and online lenders. Most of these applications can be completed online in under 10 minutes.
However, depending on how quickly the lender obtains and evaluates your paperwork, the entire approval process may take up to one week.
What is a personal loan?
A personal loan is a financial tool where a lender, often a bank or financial institution, provides a set sum of money tailored for personal needs. Unlike targeted loans like mortgages or auto loans, which are earmarked for specific purposes, a personal loan offers versatility in spending. Borrowers commonly utilize these funds for diverse purposes such as travel adventures, wedding arrangements, consolidating debts, home improvements, or managing unforeseen costs.
You have to repay the loan amount with interest specified during the loan application, in fixed monthly installments over a pre-determined period.
What is the purpose of a personal loan?
A personal loan is a versatile financial instrument that can be used for multiple purposes without restrictions, such as:
- Debt consolidation Home improvements Education expenses Medical bills Travel Any unexpected financial needs
The borrower can receive a lump sum of money that can be repaid in fixed monthly installments, making it a flexible solution to achieve personal goals or manage unexpected expenses without the need for collateral.
What are the fees associated with personal loans?
Personal loans, at the very least, charge interest. Other fees, such as an initiation or administrative fee that is deducted from your loan balance once you are allowed to do so, or an early repayment penalty if you pay off your loan too long before the end of the term (making the lender miss out), may apply to your interest payments. future). According to the latest data, the average APR for a two-year personal loan is currently 10-12% per annum. In comparison, the current average annual percentage rate (APR) for credit cards is 36%.
How do personal loans work?
Personal loans exist in many forms and can be secured or unsecured. Under a secured personal loan, you must provide collateral or asset as collateral. The secured personal loan product includes things like mortgages and car loans.
Unsecured loans do not require any collateral as collateral. That’s why these are among the most popular types of loans people apply for.
Personal loans provide a line of credit. A personal loan, unlike a credit card, provides borrowers with a one-time cash payment.
Personal loans are given in lump sums. Payment is credited directly to your savings bank account. In most circumstances, you will be obligated to repay the loan amount over time and at a set interest rate. The repayment period can vary from 1 to 7 years, depending on the lender.
You can use personal loans to finance your various requirements. From debt consolidation to marriage, personal loans can be availed for many reasons without restrictions. It is one of the main reasons why self-employed and salaried individuals apply for a personal loan to meet their urgent financial requirements.
How quickly can I get a personal loan?
With online applications, you can avail personal loans almost instantly, however, physical applications may take up to 7 days depending on the bank. The digital application process is quick and simple and requires no physical documentation at all. You can choose your loan amount and loan tenure based on your requirements and get instant approvals based on your eligibility and repayment capabilities. Do you want to know how much loan you can easily apply for and repay? Use IDFC FIRST Personal Loan EMI Calculator and plan your finances easily and quickly.
What about interest rates on personal loans and tenure?
Loan term:
The term of a personal loan usually ranges from 1 to 5 years, but some lenders offer longer terms. You can choose the period that suits your financial situation and ability to repay. Longer terms result in lower monthly payments, while shorter terms result in higher monthly payments.
interest rates:
Interest rates on personal loans vary based on your creditworthiness, lender policies and prevailing market rates. Interest rates on personal loans can be fixed or variable. Fixed rates remain constant for the life of the loan, while variable rates may change with market fluctuations. Your credit score plays a crucial role in determining your interest rate. Keep in mind that higher scores often guarantee lower rates.
Installments:
Personal loan repayments involve monthly installments, which include the principal amount and the interest amount. The EMI (Equivalent Monthly Installment) amount remains fixed throughout the loan tenure for fixed rate loans. Early repayment is often permitted, and some lenders impose prepayment penalties. Missing payments can negatively impact your credit score and result in penalties, so it’s essential to meet your payment obligations promptly.
The details mentioned here should clear up the questions you may have about what a personal loan is and how it works. IDFC FIRST BANK offers personal loans for several purposes including home renovation, marriage expenses, debt consolidation and more. You can get a large loan amount at low interest rates starting from just 10.49% per annum. Also, if you apply for a personal loan online, you can get instant approvals by submitting a completely paperless application and documentation. Apply now through our mobile banking app to get started!
