What is a personal loan?

What is a personal loan?

All you need to know about personal loan.

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A personal loan is a financing option that allows you to pay for your life’s expenses such as a vacation or a new-born or a wedding, etc. As with any loan, it depends on you paying monthly installments with added interest. The loan specifics differ according to the bank and the amount of money borrowed.



How does a bank determine whether to accept or reject a personal loan application?


The bank reviews several factors to decide, which include your credit history, your income, and any loans or credit cards you already have. Your credit history is summed up in your i-score, which is calculated by an external credit company. According to these factors, the bank accepts or rejects your loan, and if accepted, determines the interest rate for the loan.



What is the difference between a personal loan and a mortgage or a car loan?


The main difference is that usually a personal loan is unsecured, so there is no guarantee against the loan. In the case of a mortgage or car loan, the car or house are guarantees, so if you default, the bank repossesses the car or the house.

 

It differs according to each bank, but it depends on several factors, including if your salary is transferred to the bank or not.



What is the interest rate for a personal loan?


It differs according to each bank, but it depends on several factors, including if your salary is transferred to the bank or not. There are many banks that provide competitive rates for their customers with salary transfers. This guarantees that the bank will get the monthly payment for the loan. So, if your salary isn’t transferred, the interest rate will probably be higher. Usually, the interest rate for a personal loan falls within 15-20%. It’s very important to ask about the interest and how it will be calculated before taking out a loan.



What happens if you can’t repay the loan?


This will affect your i-score, and by default, your financial future. It will be harder for you to apply for other financing options in the future such as loans or credit cards.

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