You can get a loan for various purposes, for example, buying a house, buying a car, starting a business, etc. You can get loans from banks, financial institutions, investment firms, private investors, etc. As long as you have an income stream for loan repayment and fulfill the conditions for the loan (collateral, legal documents, etc.) banks, financial institutions, investment firms, and even private investors can give you a car loan, a house loan, or a business loan.
What if you need money for very personal use? Do the banks, financial institutions, investment firms, and private investors lend you money that you want to use for personal use? In other words, is there a way you can get financial help in situations like medications (for instance, you need surgery), covering a large purchase (for example, buying a new TV set), emergency expenses, college fees for your kid, sending your kid abroad, debt clearance, starting a small business (informal business such as selling on Amazon, eBay), etc? A personal loan is an answer to problems like these. If you want the money that you want to use for things like paying college fees, paying medical bills, making a large purchase, etc. you can get personal loans from banks and financial institutions.
Personal Loan: What is it Exactly?
A personal loan is a loan that you can borrow from a bank or financial institution for personal needs, for instance, home improvements, education, large purchases, medical care, wedding, etc. A personal loan is a secured or unsecured loan taken for personal needs for a certain time and paid through easy monthly installments that include principle and interest. Generally speaking, there are 4 different types of personal loans, viz: secured (loan backed by collateral such as land, house, gold, etc.), unsecured (without any collateral), fixed-rate loan (a personal loan that is repaid with a fixed amount every month), and variable rate loan.
You need money desperately, you don’t have a saving, and you try to borrow from friends or family, either they cannot lend you or do not want to lend. Personal loans help in situations like these. Let say you want to start a work-from-home business as an online clothing store, want to add extra wings to your house, undergo surgery, pursue higher education, etc. you can always go with what you want by getting a personal loan. Most banks and financial institutions will grant you personal loans as long as you fulfill the conditions. What is the maximum amount you can get as a personal loan depends on various factors like your needs, monthly income, your liabilities (existing loan, monthly expenses, etc.), collateral, etc.
Getting a Personal Loan: Your Eligibility Criteria
Every bank or financial institutions have their own eligibility criteria for a personal loan, however, some of the common things they consider are:
- Your income source (because they want to make sure you can pay back)
- Your assets like house, car, land, etc. (either for collateral or to make sure you can sell your assets for loan repayment)
- Your credit score (a score you get after calculating your total debts, repayment history, etc.; higher the score, the better is the chances of getting a loan)
Generally speaking, the main point to consider while getting a personal loan is the ratio between monthly income and fixed financial obligations, it should be at least 2:1. In other words, your income should be at least double your fixed expenses. To make things easier for you most of the banks and financial institutions have eligibility checker tools so that you can check whether you qualify for a personal loan or not.
What is the maximum amount you can get as a personal loan? Well, this depends on a number of factors, your credit score, the ratio between income and expenses, your total monthly income, loan term, collateral value (in case of a secured loan), etc.
Trying to Get a Personal Loan? Do Not Believe in These Myths
There are a lot of misconceptions regarding a personal loan. Here, we are trying to debunk some of the common misconceptions related to personal loans.
Myth: You are not eligible for a personal loan because your credit score is low or have a bad credit history
It is true that your credit score and credit history are one of the eligibility criteria for getting a personal loan, however, this is not the only point banks and financial institutions consider for a personal loan. Every bank and financial institutions have their own eligibility criteria.
Myth: Big banks do not provide personal loans, only small banks or financial institutions provide personal loan
A lot of people believe that big banks are only for big shots, and these big banks finance only big projects. However, this is just a myth. Interestingly, in most cases, big banks have smaller interest rates compared to small banks and financial institutions.
Myth: You cannot get a personal loan if you are unemployed
It is true that the lender always checks whether the burrower has any income source or not. This is to make sure that the borrower is able to pay back. However, you can get a loan even if you are unemployed provided you have collateral, or you want the loan so that you can generate an income (for a small or informal business).
Myth: Loan approval process is tedious
Well, this is also just a myth. These days banks and financial institutions are struggling to gain control over the market and they have simplified their services. If you pass the bank’s eligibility criteria and submit the required document, you can get a personal loan in 4-5 business days.
Myth: Personal loan has higher interest rates
Every bank and financial institutions have their own interest rate, however, in most case, personal loans have a cheaper interest rate. The rate of interest depends on a number of factors like the type of personal loan (secured, unsecured, fixed, variable), tenure (one year, 5 years, 10 years, etc.), and so forth.
In case you really want a personal loan, make sure you know what is a myth and what is reality. Do not negative thinkers deter you.