What is a loan? What is the meaning of a loan? What is a lender?

Read on to know the meaning of a loan, and the benefits of getting one.
What is a loan? What is the meaning of a loan? What is a lender?
5 min read
17 July 2023

Loans play a crucial role in today's financial landscape, allowing individuals to fulfil their dreams, overcome financial hurdles, and manage various unexpected expenses. A personal loan is one such popular type of loan, which provides funding with flexible tenure options.

Read on to understand the concept of loans and explore how they help you in achieving your financial goals.

What is loan?

A loan is a financial arrangement between a lender and a borrower. The lender provides a specific amount of money to the borrower, which the latter agrees to repay along with an interest charged over the predetermined tenure. Loans are designed to provide you with the access to funds they you may not have readily available, allowing them to manage big or small expenses.

What is a lender?

A lender is an entity, typically a financial institution, that provides funds or resources to borrowers with the expectation of repayment. Lenders can offer various types of loans, including mortgages, personal loans, or business loans. Interest rates and terms vary, influencing the cost and conditions of the borrowed funds.

What is a personal loan?

A personal loan is a flexible borrowing solution that can be used for various purposes, including home improvements, education expenses, medical bills, weddings, and more. Unlike loans for specific purposes, such as home loans or auto loans, personal loans offer greater flexibility in terms of usage. Further, a personal loan is an unsecured loan which doesn’t require any security or collateral for borrowing funds. Instead, lenders evaluate your creditworthiness based on the CIBIL Score, credit history, income, employment status, and other factors.

How do loans work?

Application: To apply for a personal loan, you must complete an application process. The application typically requires personal and financial information, including KYC, income details, employment history, and current debts.

Loan approval: Once you submit the loan application, the lender evaluates your creditworthiness by reviewing your credit score, and other financial details. If you meet the eligibility criteria, you will receive approval on your loan application. The loan amount, interest rate, repayment term, and any additional fees or charges will be specified in the loan agreement.

Funds disbursement: Once you accept the loan offer, the funds are disbursed to your bank account. And you can then utilise the funds as per your needs.

Repayment: Personal loans are repaid in fixed monthly instalments over a specific period, typically ranging from 6 months to 96 months. The borrower is responsible for making timely repayments, which include the principal amount borrowed and the accrued interest.

What are the factors affecting loan approval?

The approval of a personal loan is subject to various critical factors that lenders carefully evaluate. First and foremost, a borrower's credit score holds utmost importance, as it reflects their creditworthiness and past repayment behaviour. A stable and sufficient income source is essential to ensuring repayment capacity. Lenders also consider the debt-to-income ratio, which indicates the proportion of existing debts to the borrower's income. A positive credit history, free from defaults or late payments, also enhances the likelihood of loan approval.

What are the benefits of a personal loan?

1. No collateral required

A personal loan does not require collateral, in contrast to secured loans like gold loan or home loan. This means you are not required to put up any assets or other forms of security for borrowing the loan amount.

2. Flexibility

Personal loans come with a fair amount of flexibility on how they can be utilised. From planning a lavish destination wedding, covering expenses of higher education, to giving your home a makeover – a personal loan can be used for any of these purposes and then some.

3. Quick access

Personal loans are processed more swiftly than other types of loans. It is hence a popular choice for those in need of funds urgently. We offer personal loans that can be disbursed typically within 24 hours* after approval. This makes it the finest option for taking care of your unforeseen expenses without breaking a sweat.

4. Fixed repayment schedule

Personal loans generally come with fixed interest rates and repayment terms, making it easier for you to budget and plan your monthly expenses wisely.

5. Flexible tenures

There are flexible payback terms available for personal loans. This enables you to select a payback period based on your income and financial position that is suitable. Our personal loans are a well-liked choice because of the flexible repayment tenures of up to 96 months. Bajaj Finance Personal Loans can be the best choice for people who seek more freedom in their repayment terms.

Loans are an easy financial option that helps individuals to meet their personal and financial goals. By understanding the concept of loans and how they work, you can make informed decisions when seeking financial assistance. Whether it's covering unexpected expenses, managing financial emergencies, or pursuing personal aspirations, personal loans offer a flexible and accessible solution. However, it's important to carefully evaluate the terms and conditions, interest rates, and fees associated with personal loans before taking a loan.

With Bajaj Finance Limited, you can get a personal loan of up to Rs. 40 lakh, which you can repay over a tenure of 96 months. You can also use our personal loan EMI calculator to compute your monthly EMIs in advance and plan your loan repayment journey wisely.

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*Terms and conditions apply