Are you a self-employed or salaried individual trying to meet both ends? Have you given a thought about personal loan option? When there is an unusual expense like child's marriage, renovation of your home or furnishing, children’s higher education, family holiday, or any other dream to be turned into reality, make use of the personal loans.
Banks and non-banking financial organisations provide a Personal Loan to satisfy the personal financing needs of the consumer. A lender will provide loan at some interest rate to the customers for a fixed time period. The borrower then uses the loan amount for any personal purpose. The borrower not answerable to the lender about the usage of the personal loan.
Also, personal loans are unsecured loans, which means that there is no need for any kind of collateral to avail them. There is no need to commit anything to the creditor as security. As such, none of your property or asset at risk, should you fail to repay.
How do Personal Loan Work?
Personal Loans have the simplest method of operation.
Let us take a look at the working of personal loans. The processes mentioned here can differ from lender to lender.
The applicant applies to the lender for a certain amount. Based, on the eligibility of the applicant, the lender issues an offer with the final loan amount, processing charges, interest rate and the tenure and indicative broken period of the loan.
If the applicant likes the offer, they sign a loan agreement. A loan agreement is a legal contract between the lender and borrower.
The loan amount is disbursed to the applicant, upon signing the loan agreement.
The processing fee involved can be paid by the borrower separately or deducted from the loan amount.
Loan amount is always disbursed one time and in full to the borrower. The borrower, then can utilize the money as per their need and purpose. They do not need to inform the lender about the usage of the loan amount.
Loan repayment starts once the broken period is over. An EMI is deducted per month from the borrowers account on a previously agreed date. The deduction can be through either of the following: NACH, ECS or cheques depending on the loan agreement. This deduction goes on till the full tenure or until the prepayment by the borrower.
In lieu of the loan amount provided, the lender charges some amount on top of the principal amount. This extra amount is call the interest. Interest is always a certain percentage of the principal amount. This percentage is known as the interest rate.
With some lenders, there can be additional processes involved. Also the documentation may vary depending on the borrower’s profile, until the lender is satisfied.
Features of Personal Loan
Life has various ways to provide us surprise in a good manner or in a bad way, we cannot predict. We may need money in both situations. Whether it’s an occasion of happiness or any type of emergency we may need money beyond our savings. In all such cases, personal loans are the smartest option for us.
Let us have a look into the features which make them so.
The defining feature of personal loans is that they are unsecured. Here, the borrower does not Have to give anything in security to the lender bank. Generally, loans up toRs 75 lakhs are lent out over a maximum period of 25 years. Thus, your loan amount and the interest rate on that amount is dependent on various factors such as monthly income etc.
Processing Fee 1-3% (One time fee)