Small personal loans usually cater to the needs of individuals who may require urgent funds, be it for emergencies or short-term financial needs. Such loans are unsecured. They come with less paperwork, thus resulting in faster processing, unlike typical loans. This article explains what small personal loans are, what features they possess alongside their common purposes, their eligibility criteria and the steps involved in applying for small personal loans.
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What are Small Personal Loans?
Small personal loans or mini-loans, are categorised as unsecured loans that provide borrowers with a limited amount of funds that can range from a few thousand to a few lakh rupees. This feature makes them accessible to individuals who may not possess any assets. Most borrowers including salaried and self-employed individuals find small loans to be a convenient borrowing solution due to the flexible repayment and competitive rates offered by them.
What are the Features of Small Personal Loans?
Various features of small personal loans that make them preferable are as follows.
Swift Approval and Disbursement
Various lenders understand the urgency faced by several individuals that result in the need for funds. Therefore, banks and Non-Banking Financial Companies (NBFCs) streamlined their processes to ensure that the approval and disbursement of funds happened swiftly.
Reduced Amount of Documentation
The requirement for a larger number of documents has been replaced with minimal documentation to speed up the approval process. To initiate the application process, most of the lenders ask for basic identification proofs, address verification and income statements.
Flexible Duration for Repayment and Competitive Interest Rates
The duration for small personal loans can range from a few months to a few years. Borrowers have flexibility in managing monthly instalments, and can thus choose a repayment structure that suits their financial situation. Furthermore, the interest rate on small lenders may vary on the lender, the amount of the loan, and the individual’s credit profile. Therefore, borrowers must research and compare offers to attain favourable terms and conditions.
Eligibility Criteria of Small Personal Loans
The eligibility criteria for small loan apply may vary from lender to lender. However, some of the common criteria are that the borrower must be between the 21 and 58 years age group and must have a stable income source. Even though the minimum income threshold may vary, both salaried and self-employed individuals are eligible after they demonstrate a consistent income source. Another important criterion is the credit score of the applicant. A good credit score increases the chances of loan approval. The individual may secure favourable interest rates due to good credit scores.
Use Cases of Small Personal Loans
Once the loan is approved and disbursed, it can used for:
- Medical emergencies that require paying off medical bills, or meeting financial requirements of minor or major surgeries.
- House restoration or repairs that would maintain or enhance the living space.
- Educational expenses such as short-term course or certification expenses.
- Combining multiple loans into a single loan simplifies payments and potentially reduces the cost of loans.
- Funding major life events such as weddings.
How to Apply for a Small Personal Loan
To apply for a small personal loan, individuals can follow the steps below.
Step 1: Evaluate the Financial Requirements
The applicants for a small personal loan should analyse their monthly expenses and income to know how much they need. This will help them avoid over-borrowing and will also help them know their repayment capacity.
Step 2: Research Different Lenders
Before applying for a small personal loan, one should research the products of different lenders. The aspects that they should compare while doing so are their eligibility criteria, interest rates, processing charges, late payment charges, and repayment terms.
Step 3: Fill in the Application Form Along With Documents
Finish the application by filling in the required details and attaching documents such as proof of identification, proof of address, proof of income and bank statements.
Step 4: Get Funds After Approval
After submitting the application, lenders will review the application, and check the documents. This is a process which takes anywhere between a few hours to a couple of days. After verification, the lender will deposit the amount in the bank account of the borrower’s choice.
Conclusion
A small personal loan can be a practical financial tool that can assist individuals in meeting their urgent financial requirements. Swift approval, minimal documentation, flexible repayment tenure and affordable rates are some of the features of small personal loans. While being in the 21 to 58 age gap, applicants must have a stable income source along with a good credit score. Before applying for a small personal loan, individuals must assess their financial requirements to understand their repayment capacity. Furthermore, they should compare various lenders, submit the necessary documents and wait for the lender’s approval. Post approval, the funds received can be used to meet urgent financial requirements.
