7 Facts about Personal Loan
Isn’t it true that a though of availing a credit has crossed your mind, either to buy a new car, buy a new or old property or start a business.
Although loan is a great option to fulfill your dreams, it is important to know some facts before applying for a loan.
What is Personal Loan?
Personal loan is an agreement that the bank makes with the person (i.e. borrower) to lend the money, which the borrower has to return in addition to the interest rate and other administrative charges involved in processing the loan.
(1) Both the parties involved are in debt. Lender is in debt because their money is with the borrower until fully repaid with all charges included. And borrower is of course in debt, until he/she repays the full amount along with the interest and other applicable charges on time. Credit is therefore an agreement that, if honored, is very beneficial to both parties.
(2) Loan can be availed mostly by every individual. You don’t have to be an entrepreneur to get a loan or high income earner. You can be a government employee, low income earner, self employed, professional working in small or big company. There are loans available that suits every need and every category of individual. There are plans for all kinds of people and the amount borrowed can vary in many ways.
(3) Before applying for loan, know the fact that the amount is granted based on ability to repay. No credit institution will give you more money than the ability to repay.
(4) There are some agreements that specify how you can use the money. Borrower must bear in mind that some personal loan can be used for specific purpose only and cannot be used for anything else. These are restrictive and you have to be careful when applying.
(5) They are quick to get. A common belief is that, if you ask for a loan or credit card you will be granted it after a very long process, full of paperwork and formalities. This may be very tedious for you but important for the lender.
(6) When there is a negative credit history, the paperwork can become slow and cumbersome and chances of rejection also increases. You can probably get the loan, but it can be a long and complicated process. That’s why, if you decide to apply for credit, make sure you’re clear that you’re going to pay it off to the lender, and have a positive credit history. Basically granting money should be profitable for the lenders.
(7) Although you know how much you will pay in interest, there is a possibility that this number may not be fixed and may vary from time to time. You may be able to pay more than you agreed to, if you take out a loan with a fixed or variable interest rate.
This article has been written by Chandra Mehta.
Chandra is a seasoned banker with 35+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries.
He has authored many articles on this site (allonmoney.com).