5 Financial Implications of Availing a Personal Loan

Feb 28, 2017

A personal loan is a great option when you need extra cash. You can use it to finance your home improvement project, a child's education, or a wedding. Use it to pay for an overseas trip or unforeseen medical bills as well. One big advantage is that you can get a personal loan quickly. Another advantage is that you need to provide fewer documents. So, the process of getting a personal loan is hassle-free. A personal loan is also a good fallback option if you need cash urgently when your bank balance is low. But before you apply for a personal loan, here are a few points to consider:

  • Quick availability: You can get approval for a personal loan in as little as 24 hours. You simply need to have all your information in place. How much can you avail? Lenders offer anywhere between Rs 1 lakh and Rs 15 lakh. Besides, the lender sends the money to your account. In fact, you could even use a personal loan when travelling abroad. Some countries require you to have a certain minimum balance in your bank account. You could avail a personal loan cover the shortfall. Besides, this could work as an emergency fund during your travels.

Related: 5 Personal Loan Do's and Dont's to keep in mind

  • Flexible prepayment options: Say, you get a bonus or an increment. You want to use this extra money to prepay your personal loan. But there are some conditions here. You may need to pay a penalty in case of part payment within less than six months of loan disbursal. Prepayments become free of charge after this period. If you prepay within a year, you can pay at most 25% of the principal amount. Should you wish to pay more than 25%, be ready to pay a 2% closure charge on the extra amount. You could even pay off the entire outstanding amount of your personal loan. But to do so free of charge, wait for the first 180 days to pass.
  • Flexible modes of payment: Making payments on your loan is easy enough. You can pay online or through an auto-debit instruction. You could even issue post-dated cheques. Choose whichever option is most suitable for you.

Related: Personal loan v/s credit card: A situational guide

  • Processing fee: Upon applying for a personal loan, the lender will charge you a non-refundable processing fee. The amount would vary depending on the particulars of your loan.
  • Unsecured loan: Unlike a home loan or a car loan, a personal loan is generally unsecured. In other words, you do not need to provide any collateral. As they are unsecured loans, the rate of interest tends to be a bit high. But look at the big picture. A personal loan can see you through many emergencies and other financial needs. Use it for emergency travel, to buy jewellery during a family wedding, or for something else.

A personal loan can be a good back-up when you face a cash crunch. But do not use it indiscriminately. Get a personal loan only to meet unavoidable expenses or as an investment in your future. Make a wise choice.