There are quite many reasons to take on a personal loan, including debt consolidation, vacations and, weddings. But, often they are handy for expenses like home renovation, moving expenses and so on. You can pay back the loan in monthly installments with the tenure ranging from 1-5 years.
Available as a quick solution, a personal loan might seem like frivolous spending. Nevertheless, with diligent financial planning and timely repayment, you can take advantage of this loan for managing your expenses.
So, what is precisely a personal loan?
It is an unsecured loan that can be availed from a bank or Non-Banking Financial Company (NBFC). They can be secured loans as well, but that usually depends on the financial history of the borrower. The amount and the terms of repaying the loan are set forth by the lenders. Qualifying for this loan depends on a number of factors, including your credit score. The stronger your credit score, the higher the chances of getting your personal loan approved.
Other than the primary requisite of your credit score, the lenders also take into account the factors of:
- Your income
- Your loan to income ratio
- Your living arrangements (rent or own house)
- Your employment status, and so on.
Personal loans are often called as non-revolving credit as they come with a fixed timeline for repayment. They are different than credit cards (revolving debt) as they renew their limit every month. With revolving debt, you can pay a certain amount against the monthly balance that will raise your monthly usable credit limit. Whereas in the personal loan, you would be repaying the interest along with the principal amount as EMI.
What are the top reasons to avail a personal loan?
There are many causes as to why people avail personal loan, but the most popular ones are listed below:
Reason No:1: Debt Consolidation:
Many people have a problem with loan repayment. It is not because of the repayment, but the number of loans. Many loans mean too many EMI payments, and this also is the same in the case of too many credit cards. Consolidating debts with a personal loan helps in settling all your existing debts and converts them into one single debt and EMI payment. It also becomes a straight-forward payment that can be easily kept track of.
Reason No:2: Wedding expenses:
With destination wedding and other additional wedding expenses on the rise, it has now become tricky to conduct a wedding on a shoestring budget. A personal loan aids in planning your dream wedding without having to worry about a tight budget.
Reason No:3: Vacation bliss:
As personal loans do not require any reason as to why you are availing it, you can use it to plan your getaway. With international vacation spots on the rise, the young millennials now are availing personal loans to fund their travel expenses.
Reason No:4: Medical emergencies:
The one thing we cannot anticipate in our lives is medical emergencies. At that point of time, having access to funds is very important. A personal loan can help in covering those big, fat medical bills. With a quick turnaround time, you can get a loan within a matter of few hours and handle the medical care of you or your family without having to worry about the cash crunch.
Reason No:5: Home renovation:
Renovating your home can often be like opening Pandora’s box. We can never anticipate what will be the next repair task. Whether it is about upgrading your kitchen or repainting your home, there will be a considerable amount of expenses involved. A personal loan will help in easily tackling those problems.
Reason No:6: Home buying expenses:
Mostly home loans cover only 80-90% of the cost of a home, and the balance 10 or 20% has to come from your savings. Additionally, you also need to cover the registration costs, taxes, interiors, and other expenses that come along with buying a new home. A personal loan will help in covering all these additional costs and stops you from frantically searching for funds.
Reason No: 7: Home moving expenses:
You probably don’t need to take a personal loan for relocating over short-distances. But, if you are moving out of state or country, then there will be expenses involved like moving your belonging from one place to another, keeping them in storage, taking your vehicle along if it is within the country, and so on.
A personal loan can aid in managing those expenses and make your relocation a happy one. But before you take on a personal loan, make sure your new job will support you in paying off the loan. If not, it will become an added stress to your financial well-being.
Reason No:8: Education expenses:
As the personal loan is a multi-purpose loan that can help us tackle any kind of expenses, it is often a good choice when going for higher studies as well. Costs like hostel fees, tuition fees, miscellaneous fees, and so on can be managed with the aid of a personal loan.
Reason No:9: Financing an essential purchase:
Other than home renovation, we also sometimes require certain additions to our home or lifestyle that is non-negotiable for effortless living. For example, buying home appliances like refrigerators, washing machines and so on is a must. A personal loan can aid in purchasing those home additions without the need of you using your savings, and you can comfortably repay the loan. Also, your rainy-day fund will stay protected and help you in your time of need.
Applying a loan is now a very straightforward process, and many lenders have simplified the process by allowing potential borrowers to apply online. You can check around with multiple lenders by visiting their official sites or platforms that give various lenders on one page. But you need to have the following details in hand like your annual income, employment stability, and credit score along with your outstanding debts, and other expenses before going forward with the application.