5 things to know when taking an instant loan
There are several types of loans currently available in the market – whether for home, education, personal, car or others. However, the loans are not free.
A loan in simple terms refers to a borrowed monetary amount that comes with an attached cost called interest. This entire cost must be repaid monthly in the form of an equivalent monthly installment, commonly known as EMI. In short, you end up paying the loan provider more than what you profited from.
As the loan market is growing rapidly in India, several innovations in the loan market are making life easier for customers. In the middle of this is a debt instrument called an “instant loan” which, as the name suggests, is instantly available to borrowers.
Let’s find out how these loans work and whether you should opt for them.
Five things you need to know:
Loan approval period:
People with sudden, immediate and urgent needs should opt for instant loan facility from banks. Normally, if such unforeseen needs need to be met within a few hours or a day, instant loans can really come in handy in case you are unwilling or unable to borrow from your relatives or friends. However, if you have the time, say 5-10 days, you can opt for a regular personal loan as it would cost you less.
Guarantor and credit history:
Instant loans need no guarantor and very little documentation. Generally, instant loans are applied online and applicants are required to submit minimum documents online for verification themselves. For regular loans, you may need to physically visit the lender’s branches or outlets or have someone pick up your documents during the approval process.
Credit history is important for instant loans and the lender must have basic insurance to trust your ability to repay. However, it may not have the same parameters as a regular personal loan. A minimum income level will be the basic requirement below which lenders are not likely to disburse these loans and your repayment capacity can be assessed by your credit score. In regular personal loans, a more detailed check is carried out with factors such as employment history and living status (rented or owned) playing a crucial role.
Interest rates for instant loans are higher – ranging from 14% to 22%. Since credit is desperately needed at such a time, lenders are ready to offer you the same within hours with the least amount of documentation. Such loans should therefore be avoided for corporate borrowers who have no guarantee of repayment.
Some lenders may waive processing fees compared to regular personal loans, but on the other hand, regular personal loans will have cheaper interest rates.
Amount of the loan :
Based on your monthly income, existing debts, and other financial liabilities, the lender decides how much loan you are eligible for. Generally, the amount of personal loan disbursement ranges from a minimum of 50,000 to 25 lakh for regular personal loans. For instant loans, the amount may be lower given the relatively high risk of sanctioning an unsecured loan with minimal documentation.
Repayment period :
To repay the instant loan used, an individual is granted a tenure between 1 and 12 months. In a few cases, depending on the lender, borrowers may also be allowed to pay the full outstanding loan amount (including interest) in six months. In regular personal loans, the duration is wider, but a minimum of six months is required and a maximum of 60 months is allowed for repayment.
What is an instant loan?
Instant loan is basically a personal loan that is made available “instantly”. It is approved and disbursed within hours or a day or two. The loan is approved much faster than a regular personal loan and very suitable for someone with an immediate and urgent need for credit.
If sudden and unforeseen expenses arise before a wedding ceremony, urgent medical needs, major purchases or even a need for quick cash for your business, this loan instrument can be opted for. However, you must be mentally prepared for a higher interest outlay than a traditional personal loan.