Description
A personal loan has higher interest rates than secured loans like a home-equity loan, but you are not required to put up any collateral to ensure repayment. The main characteristic of a personal loan is that it is not secured by collateral. "Collateral" means something of value, like a home, boat or car that the lender can repossess if you don't repay the account as agreed. Personal loans are backed only by your promise to repay, and for this reason they are also known as "signature loans" or "unsecured loans." This kind of financing usually (but not always) comes with a fixed interest rate and a term ranging from one to five years. Unsecured loan amounts vary, but most run between a minimum and a maximum criteria.
Qualifying for a Personal Loan Because the lender must rely solely on the borrower's willingness to repay the loan as agreed, credit scoring is extremely important -- it's widely believed that the way you've managed your obligations in the past is highly predictive of your performance when borrowing in the future. The lender takes your application and verifies your income and debts. Your income and debt picture influences the amount the lender is willing to advance you and how long it is willing to lend the money. The lender also pulls a credit report, examines your scores and assigns you a credit grade.
Depending on your credit grade, loan amount and the length of time you wish to borrow, your personal loan rate will likely fall between 12 and 36 percent. Rates and terms vary considerably, so it's wise to shop a bit and obtain quotes from several competing lenders.
Why Personal Loans?
- No Collateral - Personal loans require no collateral. When you take out a home loan or auto loan, if you default, the lender can repossess the property. With a personal loan, your good name is the only guaranty the lender has.
- Lump Sum - They deliver a lump sum to the borrower, unlike open-ended credit lines like HELOCs or credit cards.
- Any Purpose - The funds can be used for any purpose, from debt consolidation to home improvement to providing cash flow for a business.
- Repayment - terms generally range from one to five years.
- Interest Rates - Personal loan interest rates are determined by your credit rating, and can be fixed or variable.
Personal Loan Uses
What can you use a personal loan for? Signature loans can be used for just about any purpose, from consolidating debt to funding investments or financing big-ticket purchases. Borrowers should compare personal loans to other types of financing -- for example, if buying a car, secured auto financing is probably cheaper, and if funding an education, government-backed student loans might make more sense. However, unsecured loan interest rates are likely to be lower than those of credit cards, and personal loans can make budgeting easier with their fixed rates and unchanging payment schedule.
7 Uses for Personal Loans
- Debt Consolidation
- Education Expenses
- School Books
- College Tuition
- Wedding
- Vacation
- Pay off credit cards
Note: Quantum Profitas does not recommend taking out long-term financing for short-term needs. However, consumers determined to finance a short-term need might be better served by a personal loan than another option like a credit card.
Eligibility Criteria
Eligibility Criteria for Salaried Individuals
- Salaried Individuals include Salaried Doctors, CAs, employees of select Public and Private limited companies.
- Minimum age of Applicant: 25 years
- Maximum age of Applicant at loan maturity: 60 years
- Minimum employment: Minimum 3 years in employment and minimum 1 year in the current organization
- Minimum Net Monthly Income: Rs. 15,000
Eligibility Criteria for Self Employed
- Self employed (Professionals) include self – employed Doctors, Chartered Accountants.
- Minimum age of Applicant: 25 years for Chartered Accountants and 27 years for Doctors.
- Maximum age of Applicant at loan maturity: 65 years
- Special Personal Loan scheme for Self-Employed Doctors.
- Minimum Annual Income: Rs. 200000/- p.a.
Personal Loan Tips
If you are in the urgency of short term fund then a personal loan is one of the options available to you. Their easy availability is one of the biggest draws. While it is certainly a good way for handy cash, they are expensive and you are best advised to look before you leap into them.
So, we are going of share some smart tips about personal loans, which would help make this loan product work in your favour instead of creating a problem.
Tips 1: Do a smart all inclusive comparison
- When you plan to take a personal loan, you would observe that interest rates vary from bank to bank. The best way to get an optimal loan would be not just to compare the rate of interest or EMI, but also take into account the processing charges, documentation charges and pre-closure charges.
Tips 2: Examine other options
- Secured loans such as loan against gold or other securities usually come at a cheaper rate of interest. Hence, if you do have security that you can use, do examine that option before swinging in for a high interest personal loan.
Tips 3: Do not over-shop for the loan
- When you apply for a loan you leave a "footprint" on your credit record which lenders check before approving a loan. Too many loan applications bring down your credit score.
- As a result lenders will see you as more of a credit risk, so your latest loan application is less likely to be approved or the rate of interest will be higher.
Tips 4: Read the loan document
- Before signing on for a personal loan, read the document properly. Ensure all the terms and conditions are filled in completely and match on those that were agreed upon while taking the loan. Very often, personal loans are marketed by agents who are more interested in meeting sales targets than giving accurate updated information to the customer. So beware!
Tips 5: Use the money productively
- Use the home personal loan for productive purposes. Personal loans are easily available, but do remember that you have to repay them and they do come with a high interest rate. It is wise to take a loan if you really need it or if it is being used to generate income that will help you repay the loan and interest.