How Does a Personal Loan Works

Published on: 10 May 2023

You may need financing during various stages of life to achieve your goals or meet urgent needs. Whether it is to remodel your home, upskill yourself or pay for medical emergencies, a loan offers fast and convenient access to funds.

Here’s how it works and the process you can follow to apply.

How do personal loans work?

One of the easiest and fastest methods to obtain credit and repay the amount in monthly installments is through a personal loan. One of the reasons why it is easy to apply for is because it is an unsecured loan. Since it doesn’t require you to pledge any asset as security or collateral, the paperwork required is minimal and the asset evaluation process is eliminated.

All you need to do is apply for the loan is share key details about yourself, your employment and your income. When the lender receives your personal loan application, they assess your repayment ability and past behaviour with credit. This may be done through AI (Artificial Intelligence) and ML (Machine Learning) processes for speedier and more inclusive processing.

Once the verification is through, your loan application is either approved or rejected. If it is approved, the lender disburses your loan. You will then receive the loan amount in your bank account. Once you get the funds, you can use them for any purpose without restrictions.

To repay the loan, you will pay EMIs or equated monthly instalments for the tenure you have chosen. Based on the lender, this may range from a few months to 5 years. EMIs not only take the loan amount into consideration but also the personal loan interest rate. This rate is the cost of borrowing funds. Watch out for the interest rate and choose a lender with affordable rates so you can repay the loan stress-free.

You can also repay the loan amount before the tenure ends. This is called prepayment and while some lenders have prepayment charges, others do not. Prepaying your loan helps you reduce your total interest dues.

What is the personal loan process to apply and get funds?

Personal loans have a simple process of application. Follow the steps listed below:

• Compare various personal loans in the market and check the current interest rates
• Check the eligibility criteria of the lender to ensure you qualify for the loan
• Plan repayment by using the personal loan EMI calculator
• On choosing the ideal lender, apply for the loan online or offline by filling out the form
• Attach the required documents such as your bank statements, ID and address proof
• Await verification and on receiving approval, sign the loan agreement
• The lender will then transfer the loan amount to your bank account

Now that you know how personal loan works and the process to get funds, you can get started right away. At Fibe, you can get a loan from ₹5,000 to ₹5 lacs in just 10 minutes with a simple online application. Our assessment process is not based on credit scores but on alternate credit scoring that allows you to get a loan even if you are new to credit. Download the Fibe Personal Loan App to have access to funds at your fingertips!