What is a personal and its benefits
A personal loan is an unsecured credit that banks and non-banking financial companies (NBFCs) offer to applicants who need it. Also, availing a personal loan is easier compared to other types of loans such as home or car loans.
In this article, you will get to know what a personal loan is and what are its benefits.
The spending habits of the young generation are redefining the financial sector. Gone are the days when only conventional loans like home loans and car loans took centre stage. Be it travelling the globe or an expensive marriage ceremony, young Indians aren’t afraid to pursue their dreams. In order to get what they want, many individuals seek financial help from personal loans.
A personal loan is an unsecured loan provided by lenders to individuals who want to meet their personal needs. There is no requirement of collateral for availing a personal loan. One of the reasons why many prefer personal loans is because of this benefit. Also, the processing time is shorter compared to other types of loans.
Unlike other loans that can be availed only for specific needs, personal loans can be used for a variety of reasons. Most of the applicants apply for a personal loan to pay for emergency medical expenses, fund a wedding, plan a trip, etc. However, prior to approving the loan, banks check an applicant’s eligibility based on income, employment history, credit history, etc.
Benefits of a Personal Loan
- Minimum Documentation
Other types of loans require plenty of documents, but the documentation process of personal loans is very short.
- No Collateral
When applicants avail a home loan, their home becomes collateral until the loan is paid off. However, this is not the case with personal loans, as there is no requirement of collateral.
- Fixed Interest Rate
Personal loans are offered at a fixed interest rate. This rate is established when the loan tenure starts. Hence, borrowers won’t have to worry about a rise in the EMI amount.
- Loan Tenure
Banks offer borrowers the flexibility to decide the loan tenure. Most personal loans have a tenure between 1 year and 5 years. An applicant can save on the interest amount by repaying the debt in a shorter tenure.
Compared to other loans, the processing time of personal loans is shorter. As many banks offer personal loan online, availing one has become even easier. If an applicant meets the eligibility requirements, then the loan can be disbursed in a matter of hours.
- Tax Benefits
There are some tax exemptions available on a personal loan under the Income Tax Act. A personal loan borrowed to purchase or construct a house can be eligible for tax deduction under Section 24(b).
A borrower can claim up to Rs. 2 Lakhs if the house is self-occupied. However, if it’s a rented property, then the borrower can claim the full amount of interest paid. For a home improvement loan, a borrower can get a tax deduction up to Rs. 30,000.
Tax benefit is also available for personal loans taken for business investment. A personal loan’s interest amount will be deemed as an expense. Hence, when businesses file for taxes, their revenue will be calculated after deducting the interest amount. This will lower the taxable income of the businesses.
Now that you know what a personal loan is, you can apply for one and instantly meet your financial needs.