Personal loans are among financial tools that are easy to understand with various terms that are simple to grasp. Personal loans are helpful for emergency financial needs or to take care of large expenses like weddings, home renovation, vacations, car repairing, etc. When an individual wants a personal loan, the financial institute lends them the money for a fixed amount of time with a fixed interest rate within an unsecured form without any required asset. This means that the person will have to pay the exact interest every month and pay the complete loan until the fixed period. This also means that the borrower will face less uncertainty than with a credit card loan. Personal loan providers track all the details related to the loan, for example, how much an individual has paid every month, how much money is left to be paid, and when the whole amount should be paid.
Benefits of Personal Loan
Personal loans have various benefits. As mentioned above, they are helpful in a financial crisis or in urgent need of money. They are also helpful in setting up a new business, but make note that businesses must have profit and loss strategies along with them. People can also build their credit portfolio by applying for a personal loan. They are a great way to expand the credit card portfolio with a good impression.
Risks of a Personal Loan
Although personal loans have their own benefits, they are not perfect; they have their own risks and disadvantages. Personal loans are more commonly known as unsecured loans. This means financial institutions do not require any kind of asset to extend the loan, but they do have their own fixed interest rates, which are probably higher than other interest rates. Most of the time, the risks are based on how responsible a person is with their credit and how much interest rate they will pay each month.
Applying for a Personal Loan
Applying for a personal loan is an easy and simple process, but having a loan application approved is a different matter. According to some of the rules and regulations of financial institutions, an individual will have to submit documents regarding the loan to be reviewed and a decision made. Fortunately, they will not have to mortgage their property or any asset. Documents that need to be provided for a personal loan application typically include salary slips, electricity bills, credit card history, proof of the job or income, etc.
Eligibility Criteria for a Personal Loan
The eligibility criteria for a personal loan are also simple. Still, they can be a bit strict because financial institutions are concerned about the loan’s timely repayment with the proper interest rate. If not paid on time, the banks can increase the interest rate. Financial institutions pay close attention to the documents provided by an individual to make sure that they can pay the amount back on time with the fixed interest rate. Different financial institutions have different rules, which also include the minimum income of an individual who is applying for the loan. If an individual does not meet the criteria, they may not be able to be extended the loan. These types of rules and regulations exist because banks need to secure themselves so they can lend to other reliable customers. Some financial institutions also provide different packages to a prospective borrower whose credit history is reliable. Having good credit also may allow for better interest rates from banks.
If the financial institution is satisfied with all the documents provided by an individual, they may look for more ways to make them a profitable customer and give them various benefits, like a checking account.
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