A personal loan is a type of unsecured loan which is given by financial institutions or banks to individuals in order to meet their personal needs or emergency needs, the personal loan is offered by all the financial institutions as well as banks, and if you are one of those individuals who is thinking of taking a personal loan then you should first know some of the important features of personal loan –
Characteristics of Personal Loan
Unsecured Loan
The first and foremost feature of personal loans is that they are unsecured loans implying that borrower that is a bank or financial institution won’t demand any collateral from you which is the case with other loans such as a home loan or car loan and hence due to lack of demand of collateral from the lender any salaried class or self-employed person can avail this facility. In simple words, personal loans are unsecured loans in nature due to no requirement of any collateral from the borrower by the lender.
Personal Loan is Given to Individuals
Another characteristic of this loan is that they are given to individuals and not to companies or partnership firms as for them there are other credit facilities like bank overdraft or cash credit limit and hence personal loans can be availed by individuals only. In simple words, if you have a partnership firm then as a partnership firm one cannot take a personal loan while as individual partners they can take a personal loan from the bank or financial institution.
High Rate of Interest in Personal Loan
Since personal loans are unsecured in nature they carry a higher rate of interest as opposed to other loans like home loans, car loans, student loans, and so on. Hence an individual should be mentally and financially prepared to pay higher monthly installments to the lender if her or she is thinking of availing this loan from the bank or financial institutions.
Flexibility of Use
Another important characteristic of this loan is that individual taking this loan can use this loan for any purpose as banks or financial institutions job is to give this loan to individuals without putting any restriction on its end use which is the case with other loans where a home loan can be used for only construction or purchase of a home while car loan can be used for the purchase of car only and so on. Hence personal loans can be used for individual own needs like marriage purpose, health emergencies, vacations, home renovation, paying other debts, and so on.
Quick Disbursal
Personal loans are disbursed fairly quickly as some banks and financial institutions take only 24 hours to deposit the proceeds of the loan into your saving account thus ensuring that you can use the funds quickly. In simple words when it comes to loans personal loan is perhaps the best loan if one is looking at quick disbursal as a criterion for making a decision regarding a loan.
Less Documentation
A personal loan requires very little documentation as this is an unsecured loan and there is no security involved which makes documentation part of a personal loan a very easy one and that is the reason why personal loans are sanctioned as well as disbursed in quick time which is not the case with other loans like housing loan or education loans which has lengthy documentation and hence takes a lot of time.
As one can see from the above that the personal loan has some unique characteristics and that is the reason why any individual thinking of taking a personal loan should carefully read the above points and then only should take any decision regarding whether they want to take this loan or not.