A personal loan is an all-purpose loan that can be used to fulfill any of your personal financial needs. Given its generic quality, personal loans have become the norm whenever someone is strapped for cash. Although you might be familiar with the term personal loan, you may not know how personal loans work or its application process. If you are planning to take up a personal loan, it is important to understand the entire process first. By the end of this article, you will understand the nitty-gritties of how personal loans work. Here’s the process of personal loan application works.

Compare Different Loan Options

Before you apply for a loan, it is always advisable to understand all your options. You can compare personal loans based on criteria such as loan amount, type of interest rate, additional fees, repayment amount and repayment terms. If all of these parameters concur with your needs, you can go ahead and choose a personal loan.

Understand the Eligibility Criteria

The eligibility criteria may vary from lender to lender. Therefore, it is very important to understand the eligibility criteria of the institution that is lending you the personal loan. Most lenders have limitations regarding parameters such as age, income, occupation, and residency.

Application Process

The application process for personal loans is usually simple as they do not require asset proofs and certificates. All you need is government issued ID, proof of income and bank account statements. You can apply for personal loans online or at the branch.

Approval by the lender

Once you have submitted all of the documents and forms, you will have to wait for the approval. The time for approval varies from lender to lender. Some lenders might give you an approval instantly while others might take some time.

Loan Funding

The loan funds will be credited to your account after your documents are approved by the lender. Again, the time taken for the loan fund to be credited varies from lender to lender. Generally, personal loans are funded within a few days.

Repayment

Most of the personal loans require you to make the repayment on a monthly basis. However, while choosing the repayment structure you should check for additional charges such as early repayment charges. Fixed personal loans, usually charge a penalty for early repayment.

Loan Closure

If you are repaying the loan regularly as per the loan contract, your loan will be deemed close after the final repayment. However, if you are planning to repay the loan early, it is always advisable to contact your lender and get a final payment figure when you are nearing closure. This way you avoid paying unexpected interest.