For Indians, with their myriad aspirations, personal loans have become a way of life. They depend on personal loans for all purposes, as a personal loan is one of the easiest loans in terms of eligibility. Almost everyone with a need and a stable source of income can apply for a personal loan. With the introduction of small personal loans, however, there has been a paradigm shift in the lending industry.
Earlier, people thought about loans as a costly and time-consuming proposition. Borrowers often had to submit multiple documents, visit the lender several times, and wait for loan approval, which sometimes took more than a week. With small loans, all that has become a thing of the past. Today, you can submit a few documents online and get the loan amount in your savings or a current account on the same day.
What is a Small Personal Loan?
A small loan is a personal loan that you can apply for without any requirement of collateral. Typically, borrowers avail of small loans when they need cash to finance any short-term emergency.
Hence, you may apply for small loans if your motor vehicle faces a breakdown or there is a medical emergency, or any other unplanned financial emergency. The loan amount can be much smaller than a usual personal loan. However, the eligibility for a small loan is nearly the same as personal loan eligibility.
Here are the features of small loans that make them quite popular with people seeking instant money.
Interest Rate is lower than Other Forms of Credit
When people want to make low-value purchases or withdraw small amounts at periodic intervals, they apply for credit cards. However, quite often they fail to realize that the interest rate of a card can be much higher than a personal loan. For example, while the interest rate of a credit card can go as high as 42% per annum in India, the interest rate of personal loan starts from 11.99% per annum. Additionally, lenders offer exclusive discounts, customized loan terms, and other value-added benefits for loyal customers or customers with a high credit score.
Hence, by opting for a small personal loan, you can get the flexibility and convenience of a credit card at a relatively lower rate of interest.
Apply For Any Loan Amount You Wish to
Sometimes, you may require only a few thousand rupees to get your damaged vehicle repaired or get an urgent health checkup done. Applying for a high-value loan with a lengthy loan application process might not make sense for the moment. A small loan can be your best option in such situations.
Generally, lenders offer small loan facilities to borrowers seeking funds as low as INR 10,000 to an amount of up to INR 25 lakhs. Hence, whichever amount you need to fund your requirement, there is always a small loan that can cater exclusively to you.
Give a Boost to Your Credit Score
If you already have a loan account, you probably know how crucial credit score is to the successful approval of a loan. The credit score not only plays a major role in determining your personal loan eligibility but also plays a decisive role while calculating the interest rate.
A small loan is an excellent way to boost your credit score instantly. However, to increase the score, you need to repay the loan EMIs before the due date.
The Eligibility Criteria is Straightforward
As a special type of personal loan, small personal loan eligibility is extremely simple and uncomplicated. While a credit score above 700 is a bare minimum, you may still apply for a small loan if your score is below the threshold limit. However, the interest rate might be slightly higher in such a case.
To be eligible to avail of small loans, you must be 21 years and above and have valid Indian citizenship. The lender also expects you to have a stable source of income. Usually, lenders have different income criteria for salaried and self-employed professionals.
No Need to Submit Collateral
Small loans are collateral-free loans, which means the lender cannot force you to part with your personal asset in case you default on the loan. However, the lender would still have many options to extract the loan amount in case a borrower defaults.
In case of a default, the lender would inform the credit bureau, which would reflect in the borrower’s credit score. A low credit score might send a negative message to future lenders. Additionally, the lender may report the matter to a collections agency, which would pressurise the borrower to repay. As a last resort, the lender may move the court of law and file a lawsuit.
Although small loans are designed for meeting short-term financial emergencies, you can get up to five years for paying the EMIs. You may also prepay the loan before the end of the term, increasing your eligibility to apply for a new personal loan.
With small loans, lenders have got access to borrowers who did not have any credit profile. Hence, if a critical dream of your life is stuck due to the paucity of funds, a small loan can put your aspiration back on track.