Personal loans have become a popular form of credit in India in the past decade. As the financial markets evolved, banks have done all they could to create easy-to-avail, customer-friendly credit options for their target audience. And these efforts have resulted in more people choosing personal loans to fund their large purchases, household needs, and small businesses.
A personal loan is an unsecured loan with an affordable interest rate. If you have a good credit score, low debt, and robust repayment history – you can get a personal loan with minimal paperwork; and at a reasonable interest rate. What’s more, the amount is credited to your account within hours. But besides convenience, there are many other reasons why personal loans are getting popular today. Here’s a look at some of the primary reasons –
Online Personal Loans – The digitisation of financial services has helped bring personal loans to the forefront of the Indian credit market. You can easily apply through the bank website or app to get small loan online. The process is simple, quick, and the application can be customised based on the borrower’s financial profile and preferences.
No Collateral Required – Personal loans are usually unsecured. Borrowers needn’t pledge an asset as collateral or provide details of guarantors. The absence of collateral makes it easier for borrowers to obtain a personal loan. However, lenders carefully scrutinise the applicant’s repayment ability before approving a personal loan. So, you must assess your financial record and credit score before applying for a personal loan.
Improves Credit Rating – Sometimes, availing of a small personal loan can help you enhance your credit rating. You may not get a reasonable interest rate on a personal loan if you have a low credit rating. But you can improve your credit rating by borrowing a small personal loan and repaying on time.
High Value – Organising a significant event like a wedding, a high-end birthday party, or wanting to start a home renovation project can cost considerable money. Even if you have enough savings to fund your high-value expenditure, using a personal loan to sponsor the amount makes more sense. That way, you still have your savings for emergencies and can comfortably repay your loan over the next few years.
Flexible Tenure – Another reason for the rising popularity of personal loans is the flexibility of tenure. Unlike home and education loans, personal loans can have varied tenures between six to sixty months. Borrowers can choose the tenure they are comfortable with and repay the loan over that time. It makes the repayment stress-free for borrowers and allows them to improve their credit scores by paying timely.
Zero to Minimal Documentation – Banks and financial institutions usually don’t demand extensive documentation for personal loans. Compared to home loans, education loans, and vehicle loans, the paperwork for personal loans is minimal. It is mainly owing to the unsecured nature of personal loans. Therefore, you need only essential documentation such as proof of identity, address, and income to apply for a personal loan. The paperwork may even be reduced to zero through online application processes for personal loans.
Affordable Interest Rates – Compared to a decade ago, the interest rates on personal loans have considerably reduced. When a borrower researches the options for home loans available in the market, they are sure to find various choices with competitive interest rates that they can choose from. Other unsecured loans may have high-interest rates but personal loans are much more affordable and accessible to salaried people now. For example, someone with a reasonable credit score can get a loan for Rs. 35 lakhs at an interest rate of as low as 8.45% per annum. {SOURCE} Many online portals allow borrowers to compare loan options and find the one most suited to their needs.
Apart from the points mentioned above, there are many reasons for personal loans to gain traction in the Indian market. For example, they allow borrowers to use the funds as needed. Using a personal loan to consolidate your debts and reduce your interest payment burden is also intelligent. When availing of a personal loan, online or offline, remember to compare your options, review the loan terms, read the fine print, and assess your repayment ability before signing the dotted line.
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