Financial instability is one of the biggest fears that most of the people suffer from all across the world. The level or the intensity of the problem varies from one level to another. It is often seen that having irregular and non-calculative spending habits of people, put them in severe financial constraints. But there’s no need to worry anymore as there are options through which people can combat the financial crisis situation.
In case you do not have the cash or enough financial backup to meet your everyday expenses, personal loans might seem like an immensely feasible option. Be careful, though, monthly instalments and interests, if not repaid within the stipulated period, can escalate, thus, deepen your financial troubles.
Now before hiring some agent or applying it on own, please understand how exactly this financial option works. The section below has certainly reasonable alternatives available, so, consider going through the following write-up now.
How does a personal loan work?
Personal loans have got several flavours and could be secured as well as unsecured. In case it is a secured personal loan, the customers need to offer collateral or an asset which is worth in case the person fails to repay the money he/she owes. The moment the person get default, the lender claims the asset. The most common examples of these loans are auto loans and mortgages.
When it comes to an unsecured loan, there is no need to pick up collateral. In case you fail to repay the money back to the lender, the same does not have any authority to garnish any of the assets. But it does not mean that there are no repercussions. In case you get default for an unsecured personal loan, it will hurt the credit score severely, which indirectly increases the cost of borrowing. In case, the lender can also file a lawsuit against you in order to collect the remaining interest, debt and fees. It is seen that
Personal loans are usually issued in a lump-sum amount directly to the bank account. And in most of the cases, you need to repay the loans over a fixed period of time with a given and agreed rate of interest. The period of repayment can get as short as one year, and it may also get as long as ten years. The period also varies from lender to lender.
Why you need a personal loan?
These loans have impressed a major segment of the population until now because in many cases, it has proven beneficial. To know more, please check out below-mentioned pointers
- Information Security–
When you apply, all the information you offer is encrypted, and the concerned institution does not share it with other third parties.
- No Restriction–
This option usually does not have any restriction, which means you can utilise the money for anything you wish.
- Valuable for Emergency Situations–
Since you can obtain this particular loan in less than sixty minutes, you can use it to handle emergency situations successfully. Several individuals have admitted avoiding pending fees along with a bounced check that can, unfortunately, hamper their credit scoring.
Personal loan service providers are very helpful in dealing with the clients, and they are open till late. So, you can seek their consultations and can even meet with them as per your convenience. Most of them also have an online presence, so, you can submit the application form from the comfort of your home.
Are there any disadvantages of these loans?
These loans have its fair share of cons. Organisations that specialise in lending money can at times be deceptive about data they reveal. As most borrowers cannot legally defend themselves, they incorporate misleading marketing materials in the contract.
A major portion of the profit made by the service providers comes from their former clientele, who failed to repay their obligations. They, hence, weave a vicious cycle, getting rid of which becomes quite challenging.
Factors that qualify you for the loan
Applying for this type of financial aid is usually a pain-free process when you choose to work with the lender that prioritizes speed over doing loads of paperwork. Have a look at the factors that would help you to get a personal loan fast and in a swift manner.
- Credit history and credit score
As soon as you apply for the loan through the formal application, the lender will conduct a thorough and hard credit check in order to discover the credit history and score. Different lenders have certain credit scores, and they ensure that the applicant fulfils all those criterions. People with a high credit score will always get the first preference for larger loans at better rates. Also, applicants with a long credit history will also do well in lending procedures.
- Debt-to-income Ratio
One of the key metric that usually predicts the ability to repay a loan is the debt-to-income ratio. This shows how much debt the application can avail in relation to income. Lenders also look for a ratio of 50% or lower, as it makes it more likely to be in an excellent position to repay the amount of the loan.
- Employment and Income
The lender or the service provider might ask for the information about the employment as well as income. This might include documents like the latest tax returns, IT files, pay stubs, etc. It remains no doubt that the lender feels more empowered lending money to people with a steady and concrete source of income.
Apart from all these, lenders also verify the address of the applicant and whether the person is leaving there for more than 1 year or not. Some of them even consider getting phone consultation or face to face meeting after the completion of the initial application stage. The amount of disbursal depends on a wide range of factors, and it also depends on the internal policies of the financial institutions.
Personal loans have become a highly useful tool in many circumstances and help people to deal with the situation with a backup. But again, it is not recommended to utilize these loans only for free money and underestimate the pressure that might arise when bills get overdue.
Medipally Srikanth is the founder and editor of Applyaloans . He is a writer, business owner and Entrepreneur. He served over 5 years in digital marketing industry as a Manager for reputed company. Medipally Srikanth started Applyaloans in 2017 after leaving a job in digital marketing and has been writing about financial blogs, Applyaloans partners with over 40 financial organizations in India that include the largest nationalized and private banks & NBFC’s. Applyaloans provide Personal loans, Home Loans, Credit Cards, Business loans, Education Loans, Car Loans, Mortgage loans.