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Tata Capital > Blog > Personal Use Loan > What is a Personal Loan?

Personal Use Loan

What is a Personal Loan?

What is a Personal Loan?

Many times, people are faced with unexpected and unpredictable financial demands. Whether you need money for an urgent medical expense, a home improvement, a travel expense, or a wedding ceremony, a personal loan offers an instant and effective financial solution. 

However, understanding the meaning of personal loan, along with its benefits and eligibility factors, is essential before applying for a personal loan. In this article, we discuss in detail what a personal loan’s meaning is, its benefits, features, eligibility criteria, and personal loan documents required to apply for it. 

What is a Personal Loan? (Meaning & Definition)

A personal loan definition generally refers to an unsecured loan that can be utilised to finance any of your immediate needs. Unsecured loans refer to borrowings that do not require individuals to offer assets as collateral. Personal loans are also often termed multipurpose loans. 

That is because, unlike a vehicle or a home loan designed for a specific purpose, a personal loan can be used for any financial need without any restrictions on how the borrower spends it. Some common personal loan uses include medical emergencies, wedding expenses, home renovations, or travel expenses. 

What Are the Features of Personal Loans?

Different kinds of features associated with personal loans are:

  1. Unsecured nature

Personal loans are unsecured, meaning the borrower does not have to pledge an asset as collateral. Collateral guarantees that the borrower will repay the loan in time. Personal loans are approved based on credit history and employment status. No collateral requirement also ensures that many borrowers can access them.

  1. Multipurpose

Personal loans offer the flexibility to support a variety of expenses rather than being restricted to a specific domain, as is the case with a vehicle loan, home loan, or education loan. The loan can finance medical emergencies, weddings, vacations, funerals, and home redecorations.

  1. Fixed interest rates

Most of the personal loans have a fixed interest rate. This means that the interest rate remains fixed throughout the loan’s tenure. This helps the borrowers better plan their loan obligations as they can predict the interest rates.

  1. Quick approval of applications

Many lenders offer personal loans through online applications with minimal documentation. This results in instant decisions and swifter approval of loan applications. After approval, the loan is also disbursed instantly, making it highly convenient during financial emergencies.

What are the Types of Personal Loans?

Understanding the types of personal loans can help you select the right option for your financial needs. Here are some common personal loan categories offered by lenders:

These options represent different personal loans and are usually part of the types of unsecured loans, making them accessible without collateral.

How Does a Personal Loan Work?

A personal loan works similar to any other loan. Once the required documents are submitted, the lender will evaluate your credit history and creditworthiness. The chances for approval are high in personal loans, and your loan terms will also be more favourable.

To determine your Equated Monthly Instalment for repayment of your personal loan, consider using a personal loan emi calculator. With the help of an EMI calculator, you can do better financial planning based on your income and expenses and choose loan terms that better suit your financial ability. It will also ensure that your repayment is done regularly.

What Are the Benefits of a Personal Loan?

Some  benefits associated with a personal loan include:

  1. The application process for a personal loan requires minimal documentation, making the whole process hassle-free.
  1. Borrowers can also apply for a personal loan online, where the loan amount can be easily disbursed into the borrower’s account after the loan is approved.
  1. With a personal loan, you can even decide the duration of your loan based on your repayment capacity. Usually, a personal loan lasts from one to five years.

Uses of a Personal Loan

A personal loan offers flexibility, helping you manage a variety of financial needs. 

Here are some key personal loan uses:

  • Managing medical expenses: Cover hospital bills or emergency treatments without affecting savings.
  • Funding weddings: Smoothly handle celebrations, outfits, and related costs.
  • Home repairs and renovations: Address urgent maintenance or upgrade your living space.
  • Buying gadgets: Finance smartphones, laptops, or appliances conveniently.
  • Education: Fund tuition fees, courses, or skill development programmes without delay.
  • Debt consolidation: Combine multiple debts into a single, manageable EMI.
  • Travel and leisure: Enjoy trips or vacations without straining your budget.

These uses of personal loans highlight the benefits of personal loan and  the most common reasons to take personal loan, giving you quick support from your lender when needed.

Interest Rates & Charges on Personal Loans

Interest rates and charges on personal loans vary depending on several factors. Most lenders offer reasonable personal loan interest rates, which are usually fixed and remain the same throughout the loan tenure. Your credit history, income level, employment status and the lender’s policies influence the exact rate you’re offered.

Along with the personal loan interest rate, it is essential to review additional personal loan charges, such as the personal loan processing fee, late payment charges, and prepayment penalties. Understanding these elements helps you compare offers more confidently and choose a lender with transparent terms and flexible repayment options. Tata Capital offers personal loans at attractive rates starting at 10.99 per cent.

What Are the Eligibility Criteria For a Personal Loan?

To be eligible for a personal loan, you should come under the following criteria:

1.  You must be an Indian citizen.

2.  Your age must be between 21 to 58 years.

3.  You should have a minimum monthly income of INR 15,000.

4.  You may also be required to have a minimum work experience which may be different from vendor to vendor. 

Factors That Affect Personal Loan Approval

When applying for a personal loan, understanding the key factors that influence approval

 can increase your chances of acceptance. The principal factors are:

  • Credit Score for Personal Loan Approval: A good credit score shows your repayment history and financial discipline.
  • Income and Employment Stability: Lenders check your income and job consistency to ensure manageable repayments.
  • Existing Debt Obligations: High debt-to-income ratios may reduce eligibility, as lenders consider your current financial commitments.
  • Documentation Accuracy: Incomplete or incorrect documents are a common reason for personal loan rejection.
  • Age and Residency: Meeting minimum age and residency requirements is necessary.

By keeping these factors affecting personal loan eligibility in mind, you can avoid common reasons for personal loan rejection and secure funds more efficiently.

Things to Consider Before Taking a Personal Loan

Before taking a personal loan, consider these key points to ensure a smooth borrowing experience:

Check Personal Loan Eligibility Factors: Understand your credit score, income, and employment status, as these influence loan approval.

Review Interest Rates and Charges: Compare lender rates, processing fees, and repayment terms to find the most suitable option.

Follow a Personal Loan Checklist: Ensure all documents are ready, repayment capacity is evaluated, and hidden costs are identified.

Keeping these points in mind bridges the gap between planning and borrowing, making these personal loan tips essential. These are the must-know things to check before taking a personal loan to borrow responsibly.

What Are the Documents Required for Personal Loan Application?

Having the proper documents for a personal loan ensures a smooth and hassle-free application process. The key personal loan documents required by lenders include:

  • Identity Proof: This may include your Voter ID, Driving Licence, Passport, or Aadhaar Card.
  • Address Proof: Your current address can be verified through your Voter ID, Driving Licence, Passport, or Aadhaar Card.
  • Employment Certificate: A certificate confirming at least one year of employment.
  • Proof of Income for Personal Loan: Salary slips or Income Tax Returns that demonstrate your repayment capacity.
  • Bank Statement: Statements from the last three months to reflect your financial transactions.

Keeping all your personal loan KYC documents ready can help speed up and simplify the application process.

What Are the Documents Required For a Personal Loan Application?

The following documents are necessary when you are applying for a personal loan.

1. Identity Proof: It may include your Voter ID, Driving License, Passport, or Aadhaar Card.

2. Address Proof: Your Voter ID, Driving License, Passport, or Aadhaar Card.

3. Employment Certificate: A Certificate that confirms at least one year of employment.

4. Proof of Income: Your salary slips or Income Tax Returns forms can be used.

5. Bank Statement: A review of your bank account transactions in the last three months. 

Final Thoughts

Personal loans can cater to any of your unexpected financial needs. With its flexible nature, easy accessibility, and lack of collateral requirements, a personal loan definitely provides a realistic solution for those seeking financial assistance. However, careful financial planning and comparing different loan options can help borrowers secure the loan terms and avoid financial stress during their loan tenure. 
If you are looking to apply for a personal loan, consider Tata Capita. We offer  personal loans with attractive terms, such as flexible tenure without collateral and a hybrid term loan facility. Visit the Tata Capital website or download the app today to learn more.

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FAQs

What is the maximum personal loan amount that you can borrow?

The maximum personal loan amount depends on a person's creditworthiness, income, and financial profile. The lenders determine the amount of the loan based on the borrower's eligibility and risks.

Do personal loans have fees?

Yes, personal loans have different kinds of fees, such as processing fees, prepayment fees, late payment fees, and origination fees. These are recorded in the loan agreement.

How quickly can I get a personal loan?

With Tata Capital, a personal loan can be instantly approved, and the amount can be immediately disbursed online to the borrower's account.

How many types of personal loans are there?

Two standard personal loans include: - Secured personal loan, which requires collateral. - Unsecured personal loans, which do not require collateral. The features of personal loan such as flexible usage, quick approval, and fixed interest rates make unsecured loans popular.

What is an example of a personal loan?

Some common personal loan examples include loans for home redecoration, medical expenses, wedding expenses, vacations, and more. This helps illustrate what a personal loan is in practical terms.

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