What is a Personal Loan? Definition, Types & How Do They Work?

Need cash for last-minute expenses? Want to buy a new laptop? Planning a solo trip? For every small or big expense like these, a personal loan can come in handy.

You can take a personal loan from lenders to meet your immediate financial needs. You would need to pay it back with interest in EMIs.

But before taking a personal loan it is important to understand the meaning of personal loan, how they work, the terms of borrowing, eligibility criteria, etc. 

What is a Personal Loan? – Definition

Simply put, the meaning of personal loan is the money you can borrow from a credit provider to cover any of your financial requirements. You have to pay back this money with interest over a period of time.  

You can use this money anywhere you like and pay it back in instalments every month in the form of EMIs (Equated Monthly Instalments).

You can choose to take a personal loan from a non-banking financial company (NBFC) or bank.

To understand which one is a better option for you, it is important to know the key differences between NBFC Personal Loan and a bank. You can read this blog to know more. 

Also Read: Why Opting For an NBFC Personal Loan is a Better Option?

Types of Personal Loans

There are two types of personal loans with different terms of borrowing. One where you have to provide collateral against the money you borrow, and the other where you don’t. Let’s start with understanding what’s collateral.

A collateral is an asset (like your jewellery, land, vehicle, etc.) that you give to the lender as security in exchange for the money you borrow as a personal loan.  

1) Secured Personal Loans

A secured personal loan is when you have to give collateral to the lender as a security against the personal loan you borrow. For example, if you’re taking a secured auto loan, then the vehicle that you purchase using that loan is considered as collateral.   

2) Unsecured Personal Loans

An unsecured personal loan is one where you don’t have to provide any collateral or security to the lender against the money you borrow. Most personal loans taken for the purpose of travel, wedding, etc. are unsecured.

How Do Personal Loans Work?

To get a personal loan from any lender, the first step is to start with the application process. 

Depending on your lender’s requirements, you’ll have to provide your personal information, supporting documents, etc. as part of your application.

The lender will then review your credit score, past repayment behaviour, and credit report, against the eligibility criteria to generate a loan offer for you. 

Once you accept the offer and sign the loan agreement, the money will be transferred to your account.

You will then have to repay the money according to the terms of your loan.

Making on-time EMI payments will help you avoid any kind of penalty charges or damage to your credit score.  

Also Read : How to Get a Personal Loan with low Credit Score 

The Benefits of Taking a Personal Loan

Here are some reasons why you should choose a personal loan:

1) You Can Use It Anywhere You like

One of the benefits of taking an unsecured loan is that it’s a no questions asked loan. Be it an emergency, a want, or any desire, you can use it anywhere you like.

2) Instant Access to Money

With an easy application process, instant approval, and quick disbursal, you can get the cash you need without any delay.

3) No Collaterals Required

Most instant personal loans are unsecured loans. This means that you don’t have to pledge any of your assets as security to get the personal loan.

What are the Documents Required for Personal Loan Application?

To complete your personal loan application and get approved for a loan amount, you have to provide the required documents to the lender. And while different lenders may have different requirements, there are some basic documents you must keep handy:

1. Identity proof like PAN, Aadhaar card, Passport, driver’s license, etc.

2. KYC documents and proof of residence like an Aadhaar card, utility bills, etc.

3. Proof of income like bank statements, salary slips, etc.

On Zype, you can get approved for a personal loan with no document upload or paperwork. Just enter your basic details like name, phone number, email, PAN and Aadhaar number to complete your application and get approved for a personal loan in less than 60 seconds.

Personal Loan Interest Rate And Repayment Tenure

Interest Rates on Personal Loans:

There are some charges associated with taking a personal loan. These charges include an interest rate which determines how expensive your loan is. The interest you’re charged on your personal loan depends on various factors like your credit score, repayment history and overall credit profile.

Repayment Tenure:

When you take a personal loan, you have to pay it back with interest according to your repayment plan. Usually, you have to repay the personal loan every month in the form of EMIs. The EMI is dependent on many factors like your loan amount and interest rate.

How to Apply for Quick Personal Loans?

1) You can get an instant personal loan from any bank or NBFC. You will need to complete an application based on which you will be approved for a loan.

2) If you need a personal loan urgently? Try the Zype app. On Zype, you can get personal loans up to ₹5 lakhs instantly.

3) It takes only 8 minutes to complete your application on Zype and you can get approved within 60 seconds.

4) You can then transfer the money into your bank account and choose from 3, 6, 9 or 12 EMIs to repay the loan. 

Step-by-Step Application Process

With Zype, you can complete your personal loan application in less than 8 minutes without any document uploads or paperwork.

Here are the simple steps to apply for a Personal loan on Zype:

1) Download the Zype app from the Play Store or AppStore & create your account.

2) Add your PAN number along with some other basic details like your name & phone number to complete your application.

3) Based on your eligibility, get an approved loan offer within 60 seconds.

4) Complete OTP on your Aadhaar linked number & do a selfie verification to complete your KYC.

5) Select your desired loan amount & EMI option.

6) Transfer the cash directly to your account in a single tap.  

Documents Required to Apply for a Personal Loan

Different lenders have different document requirements to process a personal loan.

With Zype, you can get a personal loan without any document uploads or paperwork. These are the only documents you will need:

1) Mandatory documents

2) Proof of photo identity

3) Proof of income

1) Mandatory Documents

Enter your PAN & Aadhaar number along with a few other details to get a credit offer & to complete your KYC. (Physical copy not required)

2) Proof of Photo Identity

After getting an instant loan approval, you will need to complete a selfie-based verification to complete your KYC. Since this is a real-time verification, you don’t need any physical documents.

3) Proof of Income (Optional)

You don’t need to submit any proof of income to get a personal loan from Zype. However, if you want to apply for a higher credit limit, all you have to do is upload your bank statement for the last 4 months.  

Conclusion:

An instant personal loan can be a very useful tool for any immediate financial requirements. But it is equally important to understand what is a personal loan and the terms involved in taking one.

Looking for an unsecured personal loan? Zype gives personal loans up to ₹5 lakhs with minimum documentation and instant approval. Get the app now!