A personal loan is a form of unsecured advance where the lender provides loans to the borrower without taking any security with minimal documentation. A personal loan is a term loan that means the borrower must repay the loan over a while with interest. Some banks or NBFCs are charging processing charges or upfront charges for Personal loans.
Nowadays, banks or NBFCs are going towards instant Personal Loans in which a pre-approved loan is available for the borrower based on transaction or past account history (even one click away in mobile banking application); for this, even lenders are not demanding any documents.
Personal loans are segregated chiefly into two categories in mostly all banks or NBFCs,
- Personal loan to a salaried
- Personal loan to a self-employed
A personal loan for a salaried is primarily available in all banks or NBFCs. Even the rate of interest is different for a Personal loan to a salaried and a Personal loan for a self-employed
Personal Loan as Priority Sector Advances
Guideline for a personal loan which covered under priority sector advances as mentioned below, Personal loan under priority sector advance includes loans to distressed persons (other than farmers), not more than Rs.1,00,000/- per borrower to prepay their debt to non-organized sector lenders.
Personal loans under priority sector advance are sanctioned to state-sponsored organizations for Scheduled Castes or Scheduled Tribes for the pre-defined purpose of purchase and supply of inputs and/or the marketing of the outputs of these organizations’ beneficiaries.
Advantages of a Personal Loan
There are several advantages to a Personal Loan, as mentioned below,
Unsecured Loan
Borrowers don’t need to provide any collateral security such as a pledge of gold, mortgage of the house, or assignment of policy against this loan. Personal loans are approved based on identity, income, the conduct of account, credit score, credit rating, etc.
Flexibility in End-Use of Fund
Mainly in all loans, Lenders have to ensure the end use of the fund, but there is no restriction on the end-use of the fund in a personal loan, which means the borrower can use availed fund to meet various requirements, i.e., medical emergencies, holidays, business, debt consolidation, marriage, etc.
Some lenders have put one restriction: borrowers cannot use this fund for speculative purposes. Speculative purpose involves investment in the market, gambling, etc.
Flexible Tenure
A personal loan is a term loan that the borrower can avail of for flexible tenure as mostly all banks or NBFCs provide a Personal Loan for periods from 12 months and 72 months. The borrower may choose a person based on their requirement and capacity to repay the loan.
Minimal Documentation with Quick disbursal
Personal loans are approved based on identity, income, the conduct of account, credit score, credit rating, etc. means minimal documents compared to other loans.
A personal loan can be disbursed within a few hours, and if it is a pre-approved personal loan, then disbursement in a few minutes.
Even now, a day’s pre-approved personal loan limits can be availed by borrowers through mobile applications without going to the bank.