Demystifying Personal Loan
A personal loan is an unsecured type of loans which are taken by people to meet personal financial needs. The market is loaded with banks and financial institutions which offer personal loans on account of one’s income, repayment capacity, credit score etc. With digitisation, one can now apply for a personal loan online either by directly visiting the bank’s portal or through Fintechs like LoansJagat which offers a comparative platform so that the applicant can make the best possible choice in terms of interest rate, loan tenure and EMI. Also, they help with getting an instant personal loan with quick processing and disbursal.
Being unsecured, the applicant is not bound to keep any asset or property as a security against the loan with the lender. The borrower can use the money as per his discretion.
Personal loan: Usages
Personal loan is one multi-utility loan which the borrower can either use to pay for his utility bills, credit card bills or to consolidate debts. It can also be used to finance one’ medical emergencies, home improvement projects, wedding, education, vacation, automobile etc. One can also use the money for business expansion. A personal loan gives the borrower the liberty to use the money as per his needs and requirements.
Eligibility criteria for personal loans
The eligibility criteria differs from bank to bank but more so take the following things into consideration:
- Age: The borrower must be aged between 21 to 60 years.
- Occupation: the borrower can be a salaried individual or self-employed. Lenders want borrowers to have a steady source of income.
- Credit score: Lenders take your credit score into consideration as they want to check your past credit history. A good credit score will give you an instant personal loan approval whereas a bad credit score below 450 may result in getting your personal loan application rejected.
Documents required for personal loan application
The documents required by each bank and NBFC may differ. But the following documents are usually required by personal loan lenders.
- Proof of Income (Salary Slip for Salaried/ Recently Acknowledged ITR for Self-Employed)
- Documents pertaining to Proof of Address
- Documents pertaining to Proof of Identity
- Certified copies of Degree/ Licence (in case of professionals and self-employed individuals)
Loan Duration
Personal loan tenure varies between 1-5 years. Short term personal loans are also provided for borrowers who want to end their liability quickly.
Loan amount disbursal
Post-approval of the loan application, the loan is disbursed within 3-7 days in your account. Some lenders disburse the loan amount almost instantly after the loan application is approved.
Personal loan: Choosing the lender
Personal loans are offered by various banks, NBFCs and financial institutions with varied interest rate, terms and other charges. It is advisable to check and compare different lenders on account of their offerings in terms of interest rate, loan amount, loan tenure, EMI payable etc before making the final plunge.
How does lender decide on the loan amount?
Different lenders have different loan sanctioning criteria. More or less, every lender takes your income, credit history and current liabilities into consideration. An excellent credit score (nearby to 900) reflects your successful previous loans repayments and hence gives assurance to the lender that you will not default which results in a higher loan amount being sanctioned.
Your monthly influx of money and outflow as liabilities (Credit Card Bills, Present Loans, ongoing EMIs etc) reflects your repayment ability. Low income and high liabilities results in lower loan amount and vice versa.
Should one opt for lowest EMI available?
One should not fall for the lowest EMI trap which some lenders draft to attract the borrowers. It is wise to calculate the total amount of interest which you will have to pay through the loan tenure. Lowest EMI is a result of long loan tenure or low-interest rate or both combined together. Personal loan calculator is an excellent online tool which lets you calculate the best possible EMI for you on account of your income and other debts.
Interest Rates
Personal loans being unsecured in nature come with a high rate of interest which usually is around 11.49 % or more. The interest rate is dependent upon factors like credit score, income, loan amount, tenure etc.
Extra charges applicable
Processing fees of around 1-2 per cent is usually charged by the lenders to process your loan application and documents. One can negotiate with the lender to waive this off.
Personal Loan co-application
In case your credentials are not up to the mark, you can co-apply for the personal loan with your family member I.e. your partner or your parents. Credit and income aspect of both the applicants are taken into consideration by the lender.