Borrowing money is something that almost every individual does at least once in their lifetime; however, it can be an intimidating process, particularly if it is your first time.
As there are various ways to borrow money, it is crucial that you opt for a financial tool that works best for you and your situation. In many cases, personal loans are an extremely popular option as they are accessible and useful while also fitting a variety of needs.
If you are looking to learn more about this financial tool, read on for the beginner’s guide to getting (and using) a personal loan.
1. What is a personal loan?
First and foremost, it is crucial to understand what a personal loan actually is — a sum of money that is borrowed from a bank, credit union, or online lender.
Generally, personal loans are unsecured, so you don’t need to put down any collateral as the borrower. Instead, when you borrow a personal loan, you will be prescribed a set repayment period and regular monthly payments.
Your repayment period will start once you receive your funds, and you will continue repaying the lender until the loan is fully paid.
The amount of money you can borrow through a personal loan depends on the bank. For example, Emkan’s personal loans range from SAR 2,000 to SAR 50,000, and the finance term varies from three to 24 months. Moreover, interest rates on personal loans are fixed, so your interest rate will not change while you repay your loan.
2. What are the benefits of a personal loan?
One of the most significant benefits of personal loans is that you (the borrower) can opt to use them for almost anything. This flexibility makes them beneficial for a variety of situations.
You can use personal loans to consolidate debt, pay off medical bills, deal with moving expenses, or fund a major purchase – the choice is yours! Just make sure you check with your lender regarding the approved uses for the particular personal loan before you apply.
Moreover, as personal loans come with a fixed interest rate and fixed repayment term, they are much more predictable than credit cards which have variable rates and monthly payments based on how much you owe. This is one of the most significant benefits of obtaining a personal loan.
Not only are the payments for personal loans more predictable than credit cards, but they also have lower interest rates than credit cards. Particularly if you have an excellent credit history, you can qualify for extremely low personal loan rates. Moreover, you may also be eligible for a higher loan amount than the limit on your credit cards.
If you are taking out a personal loan in order to consolidate debt, such as multiple credit card accounts, then a personal loan is also much easier to manage.
Being able to streamline your monthly payments (while also saving money) is another significant benefit of personal loans. After all, they are much easier to maintain than numerous credit cards with different interest rates, payment due dates, and other variables.
3. Who is eligible for a personal loan?
Eligibility is a significant factor in the prevalence of personal loan usage as more individuals are eligible for these financial tools.
For example, Emkan’s personal loans are available to individuals between the ages of 20 and 60 years who have been working in the government or semi-government sector for 1 to 3 months or the private sector for 3 to 12 months.
As long as you have a good credit score and a minimum monthly salary of SAR 2,000 (for retirees, SAR 1,900 per month), then you are eligible.
4. What to look for in a personal loan lender?
The lender you choose is going to be one of the most significant factors affecting your personal loan terms and conditions, as well as your overall experience. For this reason, it is vital that you carefully select who you decide to borrow money from.
If you have the time, conduct some research on different lenders and get quotes from them so that you have the information you need to compare interest rates and loan terms. Make sure you remember to read the fine print on all the options, including fees and penalties.
In many cases, it is highly recommended that you opt for a lender specializing in personal loans as they will have the expertise you require. This is particularly important for personal loan pricing, as they will offer you the best rates.
Keep in mind that finance costs will vary depending on the finance amount, term, and an individual’s credit score. For example, a finance amount of SAR 30,000 with a tenor of 12 months may have a finance cost of 53.62 per cent — resulting in a monthly installment of SAR 3,100.
You also want to keep in mind convenience, as you want your personal loan management to be as streamlined as possible. For this reason, it is suggested that you look for a lender that offers an app. For example, EMKAN has a mobile app that you can use to manage your loan and apply for financing. Additionally, all EMKAN’s products are compliant with Islamic sharia.
To ensure you are choosing the best lender for you, in addition to comparing loan rates, make sure you are reading online reviews and ensuring their online presence is legitimate. You may also want to use government tools to vet the company. Additionally, they should offer 24/7 customer service.
Personal loans are a fantastic option for individuals who need cash right away or need help paying for unexpected expenses or large expenditures such as vacations or weddings.
Once you are approved for your personal loan, you are able to use the money at your discretion. But always remember that a personal loan is a financial commitment, so you need to ensure that you understand what you are signing up for and have a plan for repaying your personal loan on time.
Whatever your reason for requiring a personal loan, there is no denying that it is one of the most useful financial tools available.
Saud Al Ghonaim is the CEO of Emkan Finance, a leading Saudi omni-channel FinTech brand offering innovative financing solutions such as micro, top-up, and installment financing to a wide range of audiences. He holds an MBA in Finance from the University of Akron and has 21 years of experience in a wide spectrum of retail banking, consumer finance, credit & risk management, products, development, sales management, and consumer finance operations.