The rising inflation makes managing personal finances a challenge, and covering expenses feels difficult. From soaring bills to costly groceries, nothing seems affordable anymore. This is where a personal loan can step in as a quick solution, whether you need an emergency fund or help with a medical bill. However, borrowing comes with its own set of risks, so read on to learn how to navigate the personal road landscape wisely.

What is a Personal Loan?

A personal loan is an unsecured credit provided to the borrower without collateral or security. Unlike other loans like housing, business, or car loans, personal loans are not designed for a particular purpose. It can help meet immediate funds for an international holiday, a child’s education, or renovating one’s home. Personal loans by financial institutions are based on criteria like employment history, repayment capacity, income level, profession, and credit history.

Interest Rates on Personal Loans

An interest rate is the lender’s charge for providing funds, essentially their profit on the investment. Naturally, a lower rate benefits the borrower. Expressed as a percentage of the principal, it is calculated annually. Repayment involves the borrower returning the principal plus interest rate via EMIs.

Borrowers can take personal loans with fixed interest rates unaffected by market fluctuations. However, rates may vary based on the lender and an individual’s credit history and monthly earnings. For example, two could receive vastly different rates; one might secure a significantly lower rate due to stable income, a strong CIBIL score, and a reputable lender.

What Factors Influence Eligibility?

• Geographic location: The area where you live plays a vital role in determining your eligibility for a personal loan.
• Existing credit: If you have existing debt, your eligibility for a new loan will be affected.
• Housing situation: If you own a house, your chances of getting your loan application approved are higher.
• Income: The higher a person’s income, the higher the loan amount they are eligible for.
• Organization: Working for a reputable company with a good reputation in the market ensures that you have a stable job.
• Credit history: Your credit history and credit score have the highest impact on your loan eligibility. The tenure, the interest rate, and the total loan amount, all depend on this.

An EMI Calculator: Your Personal Loan Assistant

A personal loan EMI calculator is a handy online tool to help you estimate your EMIs before you proceed further with a loan application. Simply put in the loan amount, the loan tenure, and the interest rate, and instantly calculate your monthly payments. The tool promotes financial discipline by helping you understand the financial commitment you are undertaking.

Personal loans are your financial best friends. Unlike tailored loans, these loans give you the flexibility to allocate funds according to your needs and desires. They are a sigh of relief when an individual has an instant requirement of funds. With minimal documentation and processing time, personal loans are a great financial option.