What is a personal loan?

A personal loan is a type of loan that provides funds for various personal needs such as funding a wedding, supporting education, consolidating debt, or covering medical emergencies.

Personal loans offer use of funds without any end-use restrictions. This adaptability allows borrowers to utilise personal loans for multiple legitimate purposes.

Types of Personal Loans Based on Collateral:

• Unsecured: This is a type of personal loan that does not require collateral and the approval is based on factors like creditworthiness and income.
• Secured: This is a type of personal loan that requires collateral (e.g., property, vehicle) to secure the loan.

Types of Personal Loan based on Interest Rates:

• Fixed Rate Personal Loan: The interest rate remains constant throughout the loan term, ensuring predictable monthly payments.
• Variable Rate Personal Loan: Interest rates fluctuate according to market conditions. It is however, important to remember that not all financial institutions may provide variable or floating rate personal loans.

Factors for Approval and Better Rates:

Lending institutions consider the following factors when reviewing your application:

• Credit score: A higher score may improve loan approval chances and possibly offer loans at a lower interest rate.
• Debt-to-income ratio: Low ratios indicate better financial stability and increase approval likelihood.
• Income stability: A steady income source indicate that you can make timely loan repayments, hence improving your chances of approval.
• Employment History: In addition to income stability, lending institutions may also consider your employment history, including the length of time at your current job and any periods of unemployment.
• Collateral: In some cases, lending institutions may ask for collateral, like a vehicle or property, to secure the loan.

Steps to Apply for a Personal Loan:

• Gather financial information, including credit score, income and debt-to-income ratio.
• Review multiple lending institutions to compare rates and terms.
• Choose a lending institution, submit an application and provide required documentation.
• Receive funds after approval and start repayments.

Understanding approval factors, interest rates and following the application steps can help you secure a loan with favourable terms.