Personal Loan

What is a Personal Loan?

A personal loan, or a consumer or multi-purpose loan, is an unsecured credit provided by various banks and financial institutions to meet your immediate needs. It can be used for various purposes like travel, weddings or home renovation expenses. The criteria for securing a personal loan at less interest rate depends on factors like:

• Stable income
• Credit history
• Employment history

Types of Personal Loans

Broadly there are two types of personal loans in India, namely unsecured personal loans and secured personal loans. Understanding personal loans is needed so that you can make an informed decision.

• Unsecured Personal Loans

  Under this head of personal loans, individuals are not required to provide any collateral or security against the loan. The loan is issued based on the bank's eligibility criteria wherein the lenders check the borrower's creditworthiness. Hence, having a good credit score is a prerequisite for getting unsecured personal loans. Examples of unsecured personal loans can be medical loans or educational loans wherein the borrower does not have to provide collateral for getting the loans.

• Secured Personal Loans

  Under this head of personal loans, individuals are required to provide collateral or security against the loan. The collaterals can either be physical assets like property, gold, etc or liquid assets like cash. In this case, if the borrower has low creditworthiness, he can still manage to get a loan and work towards his goal and also build his credit health. Examples of secured personal loans can be a business loan or gold loan wherein the borrower will have to provide a property or gold to avail of the respective loans.

Benefits of Personal Loans

• Quick Personal Loan Approval

  One of the primary advantages of personal loans is the quick approval process. Many lenders offer instant personal loan approval, allowing you to access funds swiftly in times of need.

• No Collateral Required

  Personal loans do not require you to pledge any asset as collateral, making them less risky for borrowers. This feature makes them ideal for individuals who do not own significant assets.

• Flexible Repayment Options

  Personal loans come with flexible repayment options, allowing you to choose a tenure that suits your financial situation. You can repay the loan in easy EMIs over a period ranging from a few months to several years.

• Versatile Use

  Whether you need funds for a medical emergency, home renovation, travel, education, or even a wedding, a personal loan can cover a wide range of expenses.

Different Kinds of Personal Loans in India

• Debt consolidation Loan:

  This type of loan is taken to combine multiple debts/loans into a single loan. This simplifies the repayment process and one may offer overall low interest rates for this kind of loan.

• Wedding Loan:

  This type of loan is taken especially for managing various expenses involved in a wedding. They can cover various costs like jewellery, catering, venue, decoration, etc. Wedding loans also provide flexible repayment plans for people to pay back easily.

• Medical Loan:

  Hospital bills can be worrisome, and if the medical expense is unplanned, it doubles up the distress. Medical loans help in that case as they are for those unexpected medical expenses and cover hospital bills and treatment. These loans have a quick approval process as compared to other loans so that the family and patient don’t have to worry about medical expenses.

• Home Renovations Loan :

  Home repairs call for huge amounts and home renovation loans come into the picture for that. It covers various home improvement expenses which will increase the value of the property. These types of loans may offer tax benefits to borrowers.

• Travel Loan:

  This type of loan provides finances for domestic and international trips and covers expenses like flights, accommodation, food, and other travel expenses.

Interest Rates for Personal Loans

The interest rates on personal loans usually range between 10.40% to 36% annually and it is calculated based on factors like:

• Amount of loan being taken
• Credit score
• Repayment terms and tenure

If an individual has a good credit score and good terms with the bank, then the interest rates can be negotiated.

Personal Loan Application Process

Once you have studied your finances and decided to take a personal loan for your needs, you need to apply for it which can be facilitated both online & offline. Here is a step-by-step process for applying for a personal loan:

• Determine the loan amount:

  Calculate the amount of loan that you would need based on your financial needs and repayment capabilities.

• Check Eligibility:

  Check whether you are eligible for the loan available in the market by lenders. Factors like age, creditworthiness, residence status, etc determine the eligibility criteria. If you are non-eligible, then work on the factors so that you can apply for them in future.

• Research:

  Search for different lenders in the market and decide the best option available in terms of interest rates, processing fees, repayment terms, etc. Shortlist the lender who can give you the most economical and best deal for your needs.

• Collect documents:

  Gather all the documents you would be required for the documentation and easy disbursal of the loan.

• Fill out the application form :

  This step can be done both in online and offline mode. For ease, borrowers prefer an online process wherein they can visit the lender's website and fill out the loan application at their comfort. If you prefer an offline process, then you will have to visit the lender's office and fill out a paper application form. Both of these modes will require you to submit the documents to the lender, either digitally or in person.

• Wait for the approval:

  After the loan application has been submitted from your end, the lender will go through it and check the eligibility criteria again for his records.

• Loan Approval

  If all the factors are favourable, then the lender will approve your loan request and will roll out a loan offer mentioning the loan amount, interest rate, repayment terms, etc.

• Review and Accept :

  Read all the details mentioned in the loan offer thoroughly and decide if they are in sync with your needs and repayment capabilities. Make sure to also read the text mentioned in the fine print as many times, lenders mention various terms and conditions there. If terms are in sync then sign the loan offer.

• Disbursal:

  The loan amount is then disbursed by the lender into your bank account for your use, which takes a few days to be credited.

• Repayment

  Make sure to repay the loan amount within the stipulated tenure through EMIs to avoid penalties or a negative impact on your credit score.

Eligibility for Personal Loan

There are certain factors which a lender checks when your loan application reaches him. If you meet those criteria then you are eligible for a personal loan from the lender:

Criteria	Salaried Person	Self-Employed Person
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• Age:

  Most lenders require borrowers to be between 21 and 60 years old.

• Income:

  A stable income is essential for loan approval. Salaried employees and self-employed individuals must meet the minimum income requirements set by the lender.

• Credit Score:

  A good credit score (typically above 700) increases your chances of approval and helps secure lower interest rates.

• Employment Status:

  Lenders prefer borrowers with stable employment and a minimum of one year of work experience.

Documents Required to apply for a Personal Loan

The lender calls for a set of documents before disbursing the loan amount to the borrowers. Here is the list of documents:

• Identity Proof:

  Aadhar Card, PAN Card, Passport, Voter ID, etc.

• Address Proof:

  Utility bills, rental agreement, passport, etc.

• Income Proof:

  Salary slips, bank statements, income tax returns, etc.

Employment Proof:

Employment certificate, business proof for self-employed individuals.

Requirement	Salaried Person	Self-Employed Person
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The above-mentioned documents are required for an Indian resident. If you are a non-resident Indian (NRI), then a different set of documents would be needed from your end, like:

• Copy of your passport and VISA
• Proof of Identity, Residence & Income of both you and your guarantors
• Recent photographs of both you and your guarantors for records

Factors to consider before choosing a Personal Loan

Below are some factors to consider for you to choose an apt personal loan for yourself:

• Interest rates

  This should be a primary factor in choosing a personal loan for yourself, do research among various lenders and choose the lender who is providing you with the minimum rate of interest as you will have to pay back that amount along with the principal amount. Well-established banks levy a comparatively lower rate of interest as compared to private lenders.

• Loan tenure

  Choosing a longer loan tenure reduces the EMI cost but makes you pay more interest over the loan duration. On the other hand, choosing a smaller loan tenure increases the EMI cost but makes you pay less interest. For a shorter need, a long tenure of loan isn’t advisable so one should mindfully choose the loan tenure based upon their repayment capability.

• Processing fees

  This is a one-time charge levied by the lender to cover the administrative expenses associated with the loan application. Choose the personal which comes up as the most economical loan concerning the processing fees and interest rates. Prioritizing a personal loan with the lowest processing fee and higher rate of interest isn’t a good decision.

• Prepayment charges

  After you have taken the loan, it is expected that you pay the loan by the end of the loan tenure by regular EMIs. If in case, you decide to pay off the full amount before the end of the loan tenure then it is known as pre-payment or pre-closure. It’s a kind of loss for lenders so certain lenders, put a penalty on you for pre-closing the loan by putting up pre-payment charges. Always check with your lender beforehand for such charges.

Things to be kept in mind

• Borrow the amount that is needed and can be repaid within the stipulated time
• Always compare the offers from multiple lenders to get the best deal for your need
• Carefully read the fine print to be aware
• Monitor and make sure that your credit score is always in a good range (750+)

Tips for Getting a Personal Loan

• Improve Your Credit Score

  A higher credit score increases your chances of loan approval and helps you secure better interest rates. Pay your bills on time, reduce outstanding debt, and avoid applying for multiple loans simultaneously.

• Choose the Right Lender

  Research and compare offers from various banks and NBFCs to find the lender that offers the best terms for your needs. Consider factors like interest rates, processing fees, and customer service.

• Evaluate Loan Terms and Conditions

  Read the terms and conditions carefully before signing the loan agreement. Pay attention to prepayment charges, late payment fees, and other hidden costs.

• Opt for a Suitable Loan Tenure

  Choose a loan tenure that aligns with your repayment capacity. A longer tenure reduces your monthly EMI but increases the total interest paid over the loan period.