10 Reasons Why Personal Loans Have Become So Popular in India
A personal loan is an unsecured loan which borrowers can use to fulfil all kinds of financial emergencies. Financial institutions consider the credit profile of the applicant, income, and repayment history to evaluate the loan eligibility before approving and disbursing the loan amount. Over the past few years, the number of personal loan borrowers has increased as more people have discovered its benefits.
Let us explore the reasons why personal loans have become so popular in our country.
Top 10 Reasons Why Personal Loans Are Popular in India
- Hassle-free Procedure
In the pre-internet era, applying for a loan was not easy. People had to physically visit the nearby branch to collect and submit their application forms and documents. Even after such a tedious procedure, there was no certainty of the loan getting sanctioned.
With the internet and online banking, getting credit has become more accessible. All you have to do is visit the official website of the lender or download their mobile app and apply for the required amount.
This is an important reason behind the popularity of personal loans in India. If you wish to avail of a loan, you can even compare the offers of different lenders online before choosing the one most aligned with your requirements.
There are various online financial tools such as personal loan EMI calculator and eligibility calculator. You can make use of these tools to check your monthly repayment obligations and whether you are eligible to avail of a loan from a specific lender. Another important benefit is that you can apply for the amount you require at any time and from anywhere at your convenience.
- No Collateral Required
Many personal loans are unsecured loans, i.e., you do not have to pledge any asset as collateral. You also do not need to provide details of guarantors. The only factor that financial institutions take into account is the borrower’s ability to repay.
No requirement of collateral is a major difference with secured loans and an important reason why lenders are seeing a rise in the number of personal loan applications.
- Flexible Loan Tenure
Personal loan tenures are flexible and generally range from 6 months to a maximum of 60 months. The fact that people can choose the tenure they are comfortable with, has contributed to the popularity of personal loans in our country. However, you should remember that longer repayment tenures lead to higher interest being applicable on your loan.
Flexible EMI schedules and terms and conditions contribute to a stress-free situation for borrowers. Moreover, repaying a personal loan via timely EMIs improves an applicant’s credit score immensely. Few fintechs are providing pre-payment options with no penalty.
- Attractive Interest Rates
More people are applying for personal loans because of their attractive interest rates. When individuals decide to avail of personal loans, they compare the interest rates offered by various lenders and choose the most affordable loans.
Nowadays, lenders offer personal loans at much lower interest rates compared to other unsecured loans. The best personal loans offered by banks start at 8.45% per annum and one can get loans of up to ₹35 lakh.
- Debt Consolidation
Another important reason behind the rising popularity of personal loans in India is that they are perfect for debt consolidation. It is an effective solution for people who have multiple debts. Consolidating every debt under a single umbrella and paying it off with a single loan is much easier than paying off multiple debts one by one.
Moreover, you can get a personal loan at a lower interest rate compared to other unsecured options like credit cards which makes it more convenient. It is also easier for borrowers to monitor their monthly repayment if they have to pay only one EMI.
- Minimal Documentation
A major advantage of personal loans is that you generally need a couple of documents to access them. All you have to keep ready are your proof of address, identity, and income. Unlike home loan documentation, you do not have to submit many paper documents.
The advent of technology has led to a paperless and simpler documentation procedure which, in turn, saves crucial time for borrowers.
- Instant Disbursal
Nowadays, the procedure is entirely app-based and paperless which has made it easier for people to apply at their convenience. In the past financial institutions used to take more time to verify the physical papers. This used to result in a longer approval period. But with the help of technology, loans are now processed and disbursed in one to seven days.
- Flexi-loan options Some lenders offer flexi-loan facilities, allowing borrowers to withdraw funds as per their requirements. This feature provides greater convenience and helps individuals manage their finances more effectively.
- Simple Eligibility Criteria
The eligibility criteria to avail of a personal loan are very simple. While it may vary from one financial institution to another, there are certain common points. A basic criterion is that the applicant has to be an Indian resident between the ages of 22 and 58 years. They also need to have a stable source of income and a clean credit profile.
Do not forget to check the terms and conditions as well as the offers of various financial institutions before you apply for a personal loan. The entire procedure is simple and paperless. So, when you are faced with financial emergencies, just visit the official website or download the app of the lender and apply for the required amount.
Frequently Asked Questions
- What should I know before getting a personal loan?
Before applying for a personal loan, you need to evaluate your credit profile. Try to improve your credit score if it is a low one. Do not forget to analyse the loan’s interest rate, processing fees, prepayment charges and other charges before applying. Also, check your monthly financial obligations and income as both these play a crucial role in your repayment ability.
- What are the important documents required for a personal loan?
The documents required may vary from lender to lender but it will be helpful if you keep the following documents ready at hand—ID proof, address proof, certified copies of licence and degrees (for self-employed professionals), income proof (salary slips and ITRs) and bank account details.
- How to select the financial institution for the personal loan?
Before choosing a particular lender, do not forget to compare the offers of various financial institutions. Important factors you need to consider are loan tenure, interest rates, and processing fees. You can use online financial tools like personal loan EMI calculator and loan eligibility calculator to decide on the most suitable option.
- How long does it take for a personal loan to be disbursed?
Nowadays, many financial institutions disburse the loan amount immediately after completing verification. After you fill in the required details on the app or website, the lender will contact you for your e-KYC. It will also verify the documents and details submitted after which you will receive the amount in your bank account. Loans are now processed and disbursed in one to seven days.
- How is having a higher credit score beneficial?
A high credit score indicates that the applicant has a good credit profile and is a trustworthy borrower. As a result, the chances of the loan getting sanctioned increase. High credit scores also enable borrowers to negotiate for lower interest rates, higher loan amounts, processing fee waivers, etc.