Personal loans: What is an instant loan? Everything you need to know

Instant personal loan is a type of unsecured loan providing quick access to money with minimal documentation and quick approval, sometimes within minutes or a few hours. Instant Personal loans are usually offered by banks, non-banking financial companies (NBFCs), or fintech lenders and are very useful for addressing short-term financial needs, including but not limited to medical emergencies, travel, or purchasing a luxury item.

One of the key features of instant loan It is the speed with which instant loans are approved. Many banks claim to offer approval within minutes or hours and loan disbursement can occur on the same day. This is mainly due to the use of technology, where the lender evaluates your creditworthiness through digital channels such as credit score checks, income verification, and more.

The loan amount varies from bank to bank but usually ranges between a few thousand to a couple of lakhs. He amortization period It is usually short and ranges from a few months to a few years (1 to 5 years).

It is vital to mention here that multiple applications in a short time can negatively affect your credit score.

Here are the key things to know about instant personal loans:

1. Unsecured nature: Instant personal loans are not insuredmeaning you don’t need to put up any collateral (such as property or other assets) to get the loan. This makes them riskier for banks, which charge higher interest rates compared to secured loans (such as home or car loans).

2. Eligibility Criteria: Common eligibility factors include age, income level, job stability, and credit score. A higher credit score (usually above 720) improves your chances of approval and getting better interest rates.

3. Interest rates: Due to their unsecured nature and speed of disbursement, interest rates on instant personal loans may be higher than traditional loans. Rates vary by lender, but generally range between 10 percent and 20 percent annually, depending on your credit score and other risk factors.

4. Rates and charges: In addition to interest, there may be other fees, such as processing fees, late payment fees, prepayment or foreclosure fees, and service taxes. It is advisable to check the Annual percentage rate (APR), which includes the interest rate and fees, to understand the true cost of the loan.

5. Minimum documentation: Instant personal loans typically require minimal documentation compared to traditional loans. Typically, you need proof of identity, proof of address, proof of income (pay stubs, bank statements) and PAN. Many banks allow borrowers to upload these documents online, which further speeds up the process.

6. Refund: These loans are normally repaid in equal monthly payments (EMI) during the chosen tenure. Many banks offer the option of automatic deduction from your bank account to avoid missed payments.

7. credit score: Getting an instant personal loan and paying it responsibly can improve your credit score. However, missing payments can damage your credit score, making it difficult to obtain credit in the future.

8. Prepayment: Some banks allow you pay the loan before the end of the mandate, partially or totally, but may charge a fine for early payment. It is important to check these terms if you plan to pay in advance to avoid additional costs.

9. Aim: Unlike secured loans, such as home or car loans, personal loans can be used for a variety of purposes, such as medical emergencies, weddings, vacations, or debt consolidation.

Some of the things to consider before applying for an instant loan

A. Affordability: Make sure the loan EMIs fit your budget.

B. Interest rate: Compare the interest rates of several banks to find the most favorable conditions.

C. Terms and Conditions: First, you must understand all the terms, conditions and fees involved to avoid hidden costs.