A personal loan is a flexible loan that can be utilised to cover a variety of urgent financial demands, including those related to education, marriage, healthcare costs, travel, etc. Its lack of collateral boosts the benefit of speedy loan sanction.
Peer-to-peer (P2P) lending is a new lending alternative that has emerged with the rise of online financial firms. P2P lending is a direct lending option open to people or small enterprises without the need for an intermediary, such as a financial institution. These loans are typically made through an internet marketplace that matches lenders and potential borrowers. Even though P2P lending offers secured and unsecured loans, personal loans still make up the majority of these loans.
So, let's examine which financing alternative is preferable and understand the reasons behind it.
Due to the following major benefits, personal loans from NBFCs such as LazyPay may be a preferable option to more recent P2P lending options:
Usage Flexibility
What more could a borrower want when one loan may meet so many needs? A personal loan can be used for any type of financial need. It can be used adaptably to simultaneously meet a variety of financial needs.
High Borrowing Limit
A borrower may take out a personal loan for any amount as long as it does not exceed the minimum and maximum limits set by the financial institutions. Financial insitutions are assured of the borrower's regular repayment capabilities by higher income or a solid credit score. This increases the borrower's likelihood of receiving a higher personal loan amount. Comparatively speaking, P2P lending is for a smaller sum than a personal loan.
Extended Loan Term
With a minimum period of one year, personal loans provide enough time for repayment. Additionally, the monthly payment schedule for such loans is easier for the borrower, making them more manageable. Compared to personal loans provided by financial institutions, loans under P2P lending have a shorter term.
Governmental Legislation Supported
The regulations of the Indian government limit conventional personal loans. Additionally, they are supported by financial institutions that adhere to strict guidelines while making loan decisions. This is not the case with peer-to-peer lending, which is a direct internet lending process without a financial institution as an intermediary. Additionally, if a borrower defaults on a loan, the government does not offer any kind of insurance or protection to the lender. Additionally, P2P lenders must adhere to strict guidelines in order to be eligible to offer loans to borrowers.
Required documentation for securing a personal loan
Due to the need to be specified in accordance with each lender's corporate standards, each lender will have distinct paperwork needs. Lenders prefer to request appropriate documents before choosing whether or not to offer a personal loan to any applicant because there is no necessity that you pledge an asset as collateral for the loan amount. Nevertheless, some documents are required irrespective of the lending strategy used. The following is the list:
- Identity proof such as a PAN card or Aadhar
- 3–6 months Statement of Account
- pay stubs for three to six months
- If you've changed jobs within the last three to six months, the lender may request your most recent and previous pay stubs.
- Proof of address
Things to Consider When Repaying Your Loan
It's crucial that you comprehend the repercussions of a loan before you decide to take one out. Therefore, before signing the paperwork, it is not a bad idea to investigate the loan and its terms. This will assist you in better understanding the loan and preventing errors. In addition, you must consider measures to make the loan payback process as simple and carefree as feasible. There are several methods for doing that:
- Use an instalment loan repayment plan to lower your monthly payment obligations. When the repayment plan begins, you'll have to start making higher payments.
- Reduce the amount you have to pay throughout the course of the loan by making smaller payments. You will find it more challenging to repay the loan as a result, nevertheless.
- Pay your bills on time. Doing so can help you avoid late fees and interest charges while also improving your credit scores.
- Utilise interest-free loan offers that are available from some lenders. These loans typically have shorter terms and lower APRs.