A personal loan is an unsecured loan offered by banks and non-banking financial companies (NBFCs). These are unsecured because a borrower is not required to pledge any asset—property, jewelry or car—to get the loan. For this reason, personal loans come with a higher interest rate compared with secured loans, such as a home or car loan.
A personal loan comes in handy in case of a financial emergency as you can borrow the required amount in 12-48 hours from an NBFC by simply submitting income-related and personal information documents. Banks can take up to seven days to process the loan request. What more? Personal loans come with no strings attached as the lender does not monitor its use.
While personal loans give easy access to credit, they can also be a recipe for financial disaster, if not managed prudently. Here are the most common mistakes you should avoid when applying for a personal loan.