What is Personal Loan? Types, Features, Objectives, Advantages and Disadvantages

A personal loan is a type of unsecured loan that is designed to meet the financial needs of individuals. With a personal loan, borrowers can access funds for a wide range of purposes, including debt consolidation, home improvements, medical expenses, and emergency funds. In this guide, we’ll take a closer look at the features, eligibility criteria, objectives, advantages, disadvantages, and interest rates of personal loans.

Types of Personal Loans:

1. Unsecured personal loan: This is the most common type of personal loan, where the loan is not backed by any collateral.
2. Secured personal loan: This type of personal loan requires collateral, such as a car or home, to secure the loan.
3. Fixed-rate personal loan: This type of personal loan has a fixed interest rate, meaning that the rate does not change throughout the life of the loan.
4. Variable-rate personal loan: This type of personal loan has an interest rate that can fluctuate over time, depending on the market conditions.
5. Debt consolidation loan: This type of personal loan is used to consolidate multiple debts into one manageable payment.
6. Personal line of credit: This type of personal loan allows borrowers to access funds as needed, up to a pre-approved limit.
7. Payday loan: This type of personal loan is a short-term loan that is intended to be repaid on the borrower’s next payday.
8. Instalment loan: This type of personal loan requires borrowers to make regular payments over a set period of time, until the loan is fully repaid.

Features of Personal Loans:

1. Unsecured: Personal loans are unsecured, meaning that they do not require collateral or security to be pledged against the loan.
2. Fixed interest rate: Personal loans typically have a fixed interest rate, which means that the interest rate does not change throughout the life of the loan.
3. Repayment period: Personal loans have a fixed repayment period, which is typically between 12 and 60 months.
4. Easy to obtain: Personal loans are often easier to obtain than other types of loans, as they do not require collateral or security to be pledged against the loan.
5. No restrictions on use: Personal loans do not come with any restrictions on how the funds can be used, giving borrowers the flexibility to use the funds as they see fit.

Eligibility Criteria for Personal Loans:

1. Age: Borrowers must be at least 18 years old to be eligible for a personal loan.
2. Employment: Borrowers must be citizens or permanent residents of the country in which they reside.
3. Employment: Borrowers must be employed and have a regular source of income.
4. Credit score: Borrowers must have a good credit score, typically 650 or higher, to be eligible for a personal loan.
5. Income: Borrowers must have a minimum income to be eligible for a personal loan, typically between $20,000 and $50,000 per year.
   

Objectives of Personal Loans:

1. Debt consolidation: Personal loans can be used to consolidate multiple debts into one manageable payment.
2. Home improvements: Personal loans can be used to finance home improvements, such as renovations or upgrades.
3. Medical expenses: Personal loans can be used to pay for medical expenses, such as surgeries or treatments.
4. Emergency funds: Personal loans can be used to access emergency funds in case of a financial emergency.

Also Read: 

1) What is Loan? Pre-approved loan.

2) What is Health Insurance?

Advantages of Personal Loans:

1. Easy to obtain: Personal loans are often easier to obtain than other types of loans, as they do not require collateral or security to be pledged against the loan.
2. Flexibility: Personal loans do not come with any restrictions on how the funds can be used, giving borrowers the flexibility to use the funds as they see fit.
3. Fixed interest rate: Personal loans typically have a fixed interest rate, which means that the interest rate does not change throughout the life of the loan.
4. Repayment period: Personal loans have a fixed repayment period, which makes it easy for borrowers to plan their repayments.
5. Access to funds: Personal loans give borrowers access to funds that they may not have otherwise, enabling them to meet their financial needs.

Disadvantages of Personal Loans:

1. High interest rate: Personal loans may have a higher interest rate than other types of loans, making them more expensive over time.
2. No collateral: Personal loans are unsecured, meaning that they do not require collateral or security to be pledged against the loan.

How to Apply for a Personal Loan:

1. Determine your eligibility: Check your credit score and income to determine if you are eligible for a personal loan.
2. Shop around: Compare different personal loan options and interest rates to find the best loan for your needs.
3. Complete an application: Fill out a personal loan application, either online or in person, with the lender of your choice.
4. Provide documentation: Provide the lender with the necessary documentation, including proof of income, ID, and bank statements.
5. Wait for approval: The lender will review your application and determine if you are approved for a personal loan.
6. Review the loan agreement: Carefully review the loan agreement to ensure you understand the terms and conditions of the loan.
7. Sign the loan agreement: Sign the loan agreement and provide any additional documentation required by the lender.
8. Receive the funds: Once the loan agreement is signed, the lender will transfer the funds to your account.

Note: The process of applying for a personal loan may vary from lender to lender, so it is important to check with the specific lender for more information on their application process.