Personal Loan: Why does the demand not decrease even though it is expensive? Know the 5 features that make it a 'superhit'..
When we need money, there are many loan options available nowadays. From home loans, car loans, to credit cards, there are different types of loans for every need. But among all these, a personal loan is one such option, whose money you can use anywhere. This is the reason why it is very popular and is always in demand.
The surprising thing is that a personal loan is very expensive compared to other loans; its interest rates can often range from 11% to 24% or even more. So the thing to think about is that, despite being expensive, why do people take it readily? Let us see today, its 5 features which make it popular.
First, understand why a personal loan is so expensive.
The answer to this question is hidden in one word - 'Risk'
A personal loan is an unsecured loan. This means that to get this loan, you do not have to mortgage any guarantee or security (like house papers, FD, gold, or any other property) with the bank.
Since the bank does not have any of your assets as a guarantee, if you default on repaying the loan, it becomes very difficult for the bank to recover its money. The bank has to take a lot of risk in giving this loan. To compensate for this high risk, banks charge high interest rates on personal loans, so that even if some loans default, the bank does not suffer much loss.
The 5 features that make it the most popular
Now let's talk about those features, due to which this loan is everyone's favorite.
1. No hassle of mortgaging anything (No Collateral)
This is its biggest USP. If you suddenly need 2-3 lakh rupees, then you do not need to think about what you will keep with the bank as a guarantee. If your credit score and income are good, then you get a loan easily.
2. Complete freedom to spend money anywhere (Flexible End Use)
If you take a home loan, then you can buy only a house with that money. Only a car with a car loan. But there is no such restriction with personal loans.
If you need to get your house repaired.
If you need to get your children married.
If there is a medical emergency.
If you need to go on a holiday.
You can use this money for any of your personal needs. The bank will never ask you where you spent the money.
3. Rocket speed approval and money in the account (Quick Disbursal)
This is its second biggest strength. If your credit score is 750 or more and all the documents are correct, then it takes only 24 to 48 hours for the loan application to be approved and the money to come in your bank account.
Many times, banks also offer pre-approved personal loans to their good customers, in which the money comes into your account almost immediately. This is the reason why it proves to be the best option in times of sudden trouble, such as a medical emergency loan.
4. Minimal documentation
Compared to secured loans, there is very little paperwork involved. Usually, you only need these three things:
Identity proof: PAN card, Aadhaar card.
Address proof: Aadhaar card, electricity bill.
Income proof: Salary slip and bank statement of the last 3-6 months.
5. Flexible repayment tenure
You usually get a time period of 12 months to 60 months (1 to 5 years) to repay the personal loan. You can choose an EMI based on your monthly income and expenses that does not put a strain on your pocket.
Personal Loan: At a Glance
Feature Description Benefits
Loan Type Unsecured. No need to pledge anything.
Full freedom to use the money for any personal purpose, no restrictions.
Approval time: 24-48 hours. Instant cash in case of an emergency.
Very little paperwork (just KYC and income proof). Very easy to apply.
Repayment period 1 to 5 years. Opportunity to choose EMI as per your convenience.
Interest rate High (11% to 24%+) to cover the bank's risk.
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