The Truth About Instant Personal Loans – Are They Worth It?

Rahul is a 28-year-old IT worker. He suddenly had to pay a ₹50,000 hospital bill. He had no savings, so he thought about taking an instant loan. On the internet, he saw ads saying “5 minute mein paise aapke account mein" and "receive cash in 24 hours". But he was worried – the loan had a high 24% interest and he had to pay it back in just 6 months. 

He also feared extra charges and getting stuck in debt. Was this instant loan a good idea? Many people like Rahul face the same question. Let's find out the truth in this blog.

Pros of An Instant Loan

1. Quick Disbursal and Approval

Instant personal loans are helpful when you need money quickly. They are approved and given to you faster than regular loans. This is possible because the process is simple and done online.

Why Instant Loans Are Fast

Many lenders use online systems to check your details quickly. This means you do not need to go to the bank or fill out many forms. Some lenders approve loans in just a few minutes, and you can get the money in your bank account within a few hours.

Read More – Is "Instant Approval" A Myth 

Example: How Fast Can You Get an Instant Loan?

These lenders offer quick loan approvals and fast disbursal times, making them suitable for urgent financial needs..

Instant loans are useful when you need money urgently, like for medical bills or urgent repairs. But always check the interest rates and repayment terms before applying.

2. Minimal Documentation

Instant personal loans are easy to get because they require very few documents. Most lenders ask only for basic papers like your ID, address proof, and income details. This makes the process simple and fast.​

Many banks and apps now use digital verification. This means you can upload your documents online or use e-KYC (electronic Know Your Customer) methods. Some lenders even allow you to complete the process through their mobile apps. This saves time and avoids the need to visit a bank branch.

Common Documents Needed

Some lenders, like Airtel Finance and TVS Credit, require only your PAN and Aadhaar numbers along with a selfie. Others, such as ICICI Bank, may offer loans without needing physical documents if you have a good credit score and a bank account with them.

Digital verification makes getting a loan quick and easy. It reduces paperwork and helps you get the money you need without delays.

3. No Collateral Required

Instant personal loans are helpful because they do not require any collateral. This means you do not have to give your house, car, gold, or any other asset as security to get the loan. These loans are called "unsecured loans."

Unsecured loans are good for people who do not own big assets but have a regular income. If you are a salaried employee or self-employed with stable earnings, you can apply for such loans. Lenders look at your income and credit score to decide if you can get the loan.

The process is simple and fast. You can apply online, and if approved, the money is sent to your bank account quickly. This is useful when you need money for emergencies like medical bills, urgent repairs, or personal needs.

Example: Unsecured Loan Options

These lenders offer unsecured loans without requiring any collateral, making them accessible to individuals with a stable income.

Unsecured loans are helpful when you need money quickly and do not want to risk your assets. However, always check the interest rates and repayment terms before applying.

4. Flexible Usage

​Instant personal loans offer great flexibility in how you can use the money. Unlike other loans that are meant for specific things like buying a car or a house, personal loans can be used for many different needs.

Why Flexible Usage Is Helpful

You can use the loan for emergencies, home repairs, weddings, education, travel, or any other personal need. Lenders do not ask how you plan to use the money. This makes it easy for you to handle unexpected expenses or plan big events without worry.

Example: Common Uses of Personal Loans

Lenders like Tata Capital, ICICI Bank, and Airtel Finance allow you to use personal loans for any of these purposes. You can apply online with minimal documents and get the money quickly.

This flexibility helps you manage your finances better and meet your goals without using your savings.

5. Available For Low Credit Score Borrowers

Yes, it is possible to obtain a personal loan even with a low credit score in India. While a high credit score (750 and above) is generally preferred by lenders, several financial institutions, especially Non-Banking Financial Companies (NBFCs) and fintech lenders, offer personal loans to individuals with lower credit scores, albeit with certain conditions.

Understanding Credit Scores and Loan Eligibility

Tips for Securing a Loan with a Low Credit Score

1. Apply with NBFCs or Fintech Lenders: Institutions like CreditAccess Grameen and Paytm may have more flexible criteria for loan approval.​
   
   
2. Provide Proof of Stable Income: Demonstrating a consistent income can reassure lenders of your repayment capacity.
   
   
3. Consider a Co-applicant or Guarantor: Having someone with a good credit score co-sign the loan can improve approval chances.
   
   
4. Opt for Secured Loans: Offering collateral can mitigate the risk for lenders, making them more likely to approve your application.
   
   
5. Start with Smaller Loan Amounts: Requesting a lower loan amount can increase the likelihood of approval.

While obtaining a personal loan with a low credit score is challenging, it is not impossible. By taking proactive steps to improve your creditworthiness and exploring alternative lending options, you can enhance your chances of securing the financial assistance you need.​

Cons of Instant Personal Loans

1. High Interest Rates

Instant personal loans are easy to get, but they often come with high interest rates. This means you end up paying much more than you borrowed.

Let’s look at an example.

Bumrah is a college student in Bengaluru. He needed ₹50,000 for his laptop and books. He took an instant personal loan from a loan app that charged 30% interest per year.

He chose to repay the loan over 12 months. So, he had to pay ₹5,000 every month. Over the years, he paid ₹60,000 in total. That’s ₹10,000 more than he borrowed.

If he had borrowed from a bank at 12% interest, he would have paid about ₹53,000 in total. That’s a difference of ₹7,000.

So, while instant loans are quick, the high interest rates can cost you a lot more. It’s better to compare options and choose loans with lower interest rates.

2. Short Repayment Tenure

Instant personal loans often come with short repayment periods, which can be challenging for borrowers. While the loan amount may be small, the pressure to repay quickly can strain finances.

Example: Rashmita's Loan Experience

Rashmita, a young professional in Bengaluru, needed ₹30,000 for a medical emergency. She opted for an instant personal loan with a 6-month tenure. The lender charged an interest rate of 24% per annum.

Loan Details:

• Principal Loan Amount: ₹30,000
• Interest Rate: 24% per annum
• Tenure: 6 months
• Monthly EMI: Approximately ₹5,400

Total Repayment:

• Total Amount Paid: ₹32,400
• Interest Paid: ₹2,400​

Despite the manageable EMI, Rashmita found it difficult to adjust her monthly budget to accommodate the loan repayment. The short tenure left her with limited financial flexibility, impacting her ability to save or handle other expenses.

Short repayment tenures in instant personal loans can lead to higher monthly payments, potentially causing financial strain. It's essential to assess one's financial capacity before committing to such loans to avoid undue stress.

3. Processing Fees and Hidden Charges

Instant personal loans can be helpful, but they often come with processing fees and hidden charges that increase the total cost of borrowing.​

Example: Manjunath's Loan Experience

Manjunath, a young professional in Bengaluru, applied for a ₹1,00,000 personal loan to cover unexpected expenses. The lender charged a 2% processing fee, amounting to ₹2,000. 

Also Read - How to Get a Personal Loan Approved in Less Than 24 Hours

Additionally, Goods and Services Tax (GST) at 18% was applied to the processing fee, adding ₹360. Therefore, Manjunath had to pay ₹2,360 upfront as processing charges.​

Loan Details:

• Loan Amount: ₹1,00,000
• Processing Fee: ₹2,000
• GST on Processing Fee: ₹360
• Total Processing Charges: ₹2,360

This means Manjunath received ₹97,640 instead of the ₹1,00,000 he applied for. Such deductions can be significant, especially when the loan amount is large.

Before taking an instant personal loan, it's crucial to inquire about all associated fees and charges. Understanding these costs can help you make an informed decision and avoid unexpected financial burdens.

4. Risk of Debt Cycle

Instant personal loans are quick and easy to get, but they can lead to a debt cycle. This happens when you borrow money to repay previous loans, creating a loop of debt that's hard to escape.

Example:

Let's say someone takes a ₹50,000 loan at 24% annual interest for 6 months.

They need to repay ₹54,000 in total (₹50,000 principal + ₹4,000 interest).

If they can't repay on time, they might take another loan to cover the first one. Here's how the debt can grow:

As shown, each new loan increases the total amount owed due to accumulating interest. This cycle can continue, making it harder to repay the debt.​

Be cautious with instant personal loans. Ensure you have a clear repayment plan to avoid falling into a debt cycle.

5. Limited Loan Amounts

Instant personal loans are convenient and quick to obtain. However, they often come with limitations on the loan amount, which may not suffice for significant financial needs.

Example:

Consider an individual who requires ₹1,00,000 for a medical emergency. They approach different instant loan providers but find that the maximum loan amounts offered vary:

In this scenario, while some lenders like ICICI Bank and Union Bank offer higher loan amounts, many instant loan providers have caps that may not meet the individual's requirements.

While instant personal loans are accessible, their limited loan amounts can be a drawback for those needing substantial funds. It's essential to assess your financial needs and explore various lending options to ensure you secure adequate funding.

Conclusion

Instant personal loans can be helpful when you need money quickly for emergencies or urgent needs. They are easy to get, require little paperwork, and don’t ask for collateral. However, they also come with high interest rates, short repayment times, and hidden charges that can make them expensive. If not managed carefully, these loans can trap you in a cycle of debt. Before taking one, it’s important to check if you can afford the repayments and compare different lenders to find the best deal. While they offer quick solutions, they may not always be the best choice for long-term financial health. Always borrow wisely and only when truly needed.

FAQs

1. What is an instant personal loan?

An instant personal loan is a quick loan you can get online without collateral. It is useful for emergencies but has higher interest rates.

2. How fast can I get the money?

Some lenders give approval in minutes and disburse money within hours. The time depends on the lender and your documents.

3. Can I get a loan with a low credit score?

Yes, some lenders offer loans for low credit scores, but interest rates will be higher. NBFCs and fintech apps are more flexible.

4. What are the risks of instant loans?

High interest and short repayment time can make them expensive. Missing payments can trap you in debt.

5. Are there hidden charges?

Yes, some lenders charge processing fees, GST, or penalties for late payments. Always read the terms carefully before borrowing.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?