Loan Purpose: How Personal Loan Purpose Impacts Approval

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One of the most sought-after benefits of Personal Loans is that they have no end-use restrictions. Although the purpose is not a part of the eligibility criterion, the lender will still need to know where you plan to use the funds. While most borrowing reasons will not stop you from getting a Personal Loan, you may get a rejection if you want to use it for a risky purpose. For instance, if you use it to gamble or invest in the share market, you may face a loss and inability to repay the loan on time.

The following sections discuss how the Personal Loan purpose affects your loan approval.

Why Does the Loan Purpose Matter?

The purpose of Personal Loan matters significantly for various reasons. Most importantly, the lending institution might have limitations on how you can use the borrowed amount. While debt consolidation is a common reason for loan application, the lenders may not allow you to repay another home loan, car loan, or student loan with a Personal Loan. They may also restrict using personal finance to make a down payment for a house.

In short, the purpose of obtaining a Personal Loan matters because lenders want to determine if it is allowed according to their policy. Furthermore, they won’t allow you to use a Personal Loan for an illegal activity or risky purpose. The purpose may also influence your Personal Loan interest rates. For instance, the interest rate for a debt consolidation loan is usually higher than a Personal Loan for education, medical treatment, or home renovation.

Common Reasons for Borrowing a Personal Loan

Loan purpose is why you need extra funding. When you apply for a Personal Loan, you must select the right loan type that matches your purpose. According to your purpose, the lender may match your application with the right financing product while assessing the risks and assigning the loan terms. You may borrow a Personal Loan for these reasons:

Education Expenses: If you plan to pursue a study abroad programme, a Personal Loan can help fill the financial gap. Sometimes, the Personal Loan interest rates are lower than conventional student loans with no end-use restrictions.
Maternity Costs: Most health insurance plans consider maternity-related costs as elective and do not cover their expenses. With a Personal Loan, you can cover the costs of labour, delivery, IVF treatments, etc.
Debt Consolidation: Paying off high-interest debt with a low-interest Personal Loan helps save money and makes repayment more manageable. If you have a decent credit score, you can easily secure a low-interest debt consolidation loan with minimal Personal Loan Fees & Charges.
Emergencies: If you lose your job, get a salary cut, get a divorce from an earning partner, or your spouse gets injured or loses life, a Personal Loan can help you meet ends to survive the situation.
Home Repairs or Improvements: If the air conditioner goes out or a water pipe bursts, a Personal Loan can cover the urgent repair costs when you are short on cash.
Expensive Purchases: A Personal Loan can finance the purchase of a costly smartphone, laptop, home appliance, etc. You can also spread the costs in EMIs without taking a substantial chunk from your savings.
Major Milestones in Life: Whether you are getting married, establishing a business, or planning for a child, a Personal Loan may provide the extra cash to achieve that goal without hassle.
Vacation Expenses: If you plan to go on a foreign vacation that requires a substantial expenditure, a Personal Loan for travel can cover various costs, including airfare, visa fees, shopping, sightseeing, hotel accommodation, etc. It can be worthwhile if you are celebrating a major milestone with a foreign trip, like an anniversary or honeymoon.

Restricted Uses of Personal Loans

Most lending institutions do not impose any end-use restrictions on Personal Loans. However, here are some restricted uses you must be aware of:

Down Payment for a Home Loan: Loan companies perceive this practice as highly risky, as the likelihood of default increases with two loan EMIs to manage each month. Although it might take some time, saving money for the down payment is better than paying it with a Personal Loan.
Business-Related Expenses: Many lenders restrict Personal Loan usage for this purpose. Statistics suggest that if you establish a business with a personal loan, it has a high chance of failure within the first few years. Using a Personal Loan for business sustenance purposes also indicates a financial shortfall, convincing the lenders to reject the loan application.
Gambling Activities: Gambling is illegal, and authentic lending institutions do not allow loan purposes for such activities.

Benefits of Borrowing a Personal Loan

Personal Loan is a fast and convenient way to receive the needed funds. They offer multiple benefits over other funding options, including the following:

The Personal Loan interest rates are reasonable, keeping the purchase cost within budget.
The documentation requirements are minimal; you can scan and upload them online without visiting the lender's branch physically.
The repayment terms are flexible, so you can use a Personal Loan EMI calculator to choose a loan tenure with budget-friendly instalments.
Personal Loans help keep your savings intact for emergency expenses. If you’re looking for a loan to cover a high cost, a Personal Loan helps pay the price without exhausting your savings.
The Personal Loan eligibility conditions are straightforward, making funds available in minutes without hassle.

Furthermore, while determining the reason for loan borrowing, evaluate your needs and decide upon an adequate loan amount. However, compare plan plans and ensure having a good credit score and low DTI ratio to get the best deal. Most importantly, evaluate your loan requirements to ensure your loan purpose makes sense to you and the lender. Check Personal Loan required docs and eligibility criteria to apply confidently and get fast approval to get the loan quickly.