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In general, loans are attached to specific causes such as home loan, car loan, education loan etc. On the contrary, a personal loan is an all-purpose loan that can be utilized to fulfill all of your personal financial needs. Be it an international vacation, wedding expenses, home renovation or medical emergencies, a personal loan can fill your budget gaps in every way. However, taking a loan is serious business. Therefore, here are the important things you need to know before you sign the dotted line.

It Is an Unsecured Loan

A personal loan is an unsecured loan. Therefore you need not use an asset as a collateral. Even if you are unable to repay the loan amount, the bank cannot seize your assets directly. Moreover, you do not require any sort of guarantor in order to get the loan approved. Nonetheless the lender will check your credit score and your income sources to gauge your ability to pay back the loan.

High Interest Rate

A personal loan generally carries a high interest rate as it does not need a collateral. Since the lender is taking a high risk by giving you an unsecured loan, you will have to pay a heavy interest. In India, personal loan rates vary between 11% and 22%.

Quick Processing Time

Since personal loans do not require any security or guarantee, the document processing is usually done within 24-48 hours. Hence, personal loans are apt for financial emergencies.

All-Purpose Loan

The best part about a personal loan is that you need not specify the reason for taking the loan. Once you apply for the loan, the amount will be credited to your account and you may use it as per your convenience.

Minimum Paperwork

Tedious paperwork is the worst thing you need at the time of financial emergencies. The paperwork involved in the application for a personal loan is minimal. You need not submit any proofs and certification of your assets. Hence you can get done with your paperwork in no time.

Understand the Type of Interest Rate

Personal loans carry two types of interest rates i.e. fixed and variable interest rates. Personal loans with a fixed interest rate tend to higher than personal loans with variable interest rate when you initially repay the loan. However, your monthly repayment amount remains the fixed throughout the loan tenure. On the other hand, the interest rates on variable personal loans increases gradually with time. Although personal loans with fixed interest might seem expensive initially, it is nevertheless the safest option.