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Personal Loan

A Personal loan is an unsecured loan that individuals can use for various purposes, such as medical emergencies, debt consolidation, home renovation, or travel. It doesn’t require collateral and is often quick to process.

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Category of Personal Loan

  • Unsecured Personal Loans: No collateral required; based on creditworthiness.
  • Secured Personal Loans: Requires collateral, like a fixed deposit or property.
  • Debt Consolidation Loans: Designed to pay off existing debts.
  • Wedding Loans: For financing wedding-related expenses.
  • Medical Loans: For unexpected medical emergencies.
  • Travel Loans: To fund vacations or trips.

Features

  • Loan Amount: Varies based on the lender and the borrower’s profile.
  • Tenure: Typically ranges from 1 to 7 years.
  • Interest Rate: Fixed or floating rates; often higher than secured loans.
  • No Collateral: Most personal loans are unsecured.
  • Quick Disbursement: Funds are often credited within days.
  • Flexible Usage: Can be used for various personal needs.

Eligibility Criteria

  • Age: Typically 21 to 65 years.
  • Income: Minimum monthly income set by the lender (varies by location and loan amount).
  • Credit Score: A high score (e.g., 700+) increases chances of approval.
  • Employment: Salaried, self-employed, or professionals with stable income.
  • Repayment Capacity: Evaluated through income and debt-to-income ratio.

Benefits

  • No Collateral Required: Reduces risk for the borrower.
  • Flexible Usage: Funds can be used for diverse personal needs.
  • Quick Approval and Disbursal: Ideal for emergencies.
  • Easy Documentation: Minimal paperwork compared to secured loans.
  • Debt Consolidation: Simplifies repayment of multiple debts.

Risks

  • High Interest Rates: Especially for individuals with low credit scores.
  • Debt Trap: Borrowing beyond capacity can lead to financial distress.
  • Impact on Credit Score: Missed payments can damage credit history.
  • Prepayment Penalty: Some lenders charge fees for early repayment.
  • Lack of Collateral: While convenient, it results in higher interest rates.

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