What Is a Personal Loan?
A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance, you may use a personal loan to consolidate debt, pay for home renovations, or plan a dream wedding. Personal loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over time, typically with interest. Some lenders may also charge fees for personal loans.
How a Personal Loan Works
A personal loan allows you to borrow a lump sum of money to pay for a variety of expenses and then repay those funds in regular payments, or installments, over time. For example, you might use a personal loan to cover:
- Moving expenses
- Debt consolidation
- Medical bills
- Wedding expenses
- Home renovations or repairs
- Funeral costs
- Vacation costs
- Unexpected expenses
Personal loans are different from other installment loans—such as student loans, car loans, and mortgage loans—that are used to fund specific expenses like education, vehicles, or homes.
Where to Find Personal Loans
The first place to look for personal loans may be your current bank or credit union. Your personal banker can advise you on what types of personal loans may be available and the borrowing options for which you’re most likely to qualify.
Personal loans can also be found online. Numerous lenders offer personal loans online. You can apply electronically, get a decision in minutes and, in some cases, get funding in as little as 24 to 48 hours after loan approval.
When comparing personal loans online or off, pay close attention to the details. Specifically, consider the following:
- Interest rate
- Fees
- Repayment terms
- Borrowing limits (minimum and maximum)
- Collateral requirements
- Identity proof: PAN card, passport, voter ID card, or driving license
- Residence proof: Aadhaar card, passport, or driving license
- Bank statements: For the past 3–6 months, showing salary credit
- Income proof: Salary slips for the last 3 months, or documents supporting the latest income tax returns
- Signature proof: PAN card or passport
- Address proof: Passport copy, Aadhaar card, driving license, utility bill, ration card, rent agreement, etc.