What are Personal Loans All About? How Do They Work?

Unforeseen emergencies occur when we expect them the least, which may require you to cater to immediate expenses related to business, home renovation, a festive occasion in the family, or hospitalisation charges. 

In such situations, personal loans can be a lifesaver. You can apply for a personal loan for every purpose, which hardly takes a few hours to reflect in your account.

Personal loans are unsecured loans offered by banks and financial institutes to meet immediate financial needs. If you are wondering how exactly these loans work and how you can apply for one, we’ve got you covered. Read on to explore the process and working of personal loans.

What are Personal Loans?

Personal loans are unsecured loans that come with unrestricted use, and the approval of these loans depends on several factors, like age, credit rating, employment, and financial needs. An interest amount is charged for the entire period using the personal loan. This interest charge is added to the monthly repayment EMI of the principal amount.  

Consider all options wisely, make a prudent comparison, and finally, pick the right financial institution to apply for your loan.

Eligibility Criteria 

The eligibility requirements vary from one lender to another. However, some common points that you need to follow are given below:

• Your age should be between 21-58, and you should have proof of your Indian nationality.
• Your monthly income should be at least Rs 15000, you should have stable employment and a good flow of income. 
• A good credit score for personal loans remains around 750-900. If you have a low score, improve it before applying for a loan.
• You should have your Identity, age, and address proof ready. Besides, you must have your financial and professional documents to apply for a personal loan.

How to Apply for Personal Loans?

After you fulfil the eligibility criteria, follow the steps mentioned below to apply for a personal loan:

Step 1 – Compare different loan options, check reviews of various lenders, and choose a lender that offers the best deal based on your repayment capabilities.

Step 2 – Visit your chosen lender’s website and fill out an application with your personal and professional details.

Step 3 – Upload your documents online.

Step 4 – After the verification process, you can instantly get approval on your loan application, after which your loan amount shall be disbursed to your bank account.

Working of a Personal Loan

Given below is a detailed explanation of how a personal loan works:

Step 1 – Once you apply for a personal loan, your eligibility criteria will be thoroughly checked and verified by your lender.

Step 2 – Your documents will be scrutinised, and the authenticity of the documents will be verified.

Step 3 – Once all the conditions are met, the financial institutes will give you an approval.

Step 4 – Most financial institutions disburse the loan amount to your bank account within hours of the approval. However, some may offer an online card to fulfil your financial needs. In contrast, others may provide doorstep delivery of a collection of documents, after which the loan amount shall be disbursed.

Step 5 – Once you receive your loan amount, your EMI will start getting deducted from your bank account from the subsequent month onwards. You will have to pay the monthly EMIs throughout the repayment schedule as agreed upon.

Step 6 – Several online financial institutions allow you to foreclose loans or make part-payment of loans. However, you must consider the charges many may apply for this facility.

Conclusion

Personal loans are in high demand, and individuals belonging to almost every sector of society depend on such loans for their financial requirements. The key reasons for the increasing popularity of personal loans are that they are readily available and can resolve your financial issues within hours.