Personal loan is an unsecured loan provided by a bank or non-banking financial company (NBFC) to an individual on the basis of key criteria such as income level, credit history, repayment capacity, employment history and other relevant factors that tend to vary from lender to another. Also known as a signature loan, a personal loan is extended to salaried and self-employed individuals alike on the basis of a judgment call made by the loan sanctioning officer on the basis of documentation submitted by the applicant.
As a personal loan is unsecured and you do not put up collateral such as property or gold to avail it, in case of a default, the lender cannot put up anything you own up for auction. Due to the greater perceived risk when sanctioning this loan, the interest rates are higher as compared to a home, gold or car loans. However, like any other loan, defaulting on a personal loan is definitely not a good idea, as it would show up on your credit report and lead to problems when you attempt to apply for credit cards or other loans in the future.
Q1. What can I use a personal loan for?
A personal loan can be used for almost any type of expense ranging from big ticket appliance purchases and home renovations to luxury vacations and debt consolidation. Some other cases where personal loans may be useful include payment to unexpected medical bills, investment in business, fixing your car, down payment of new house and much more.
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Q2. Am I eligible for personal loan?
You must have a regular source of income to avail a personal loan whether you are a salaried individual, self-employed business person or a professional. A person's eligibility is also affected by the company he/she is employed with, his/her credit history his/her residential location and other factors as per the lender’s criteria.
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