A personal loan is an unsecured loan available from banks, fintech firms, and other non-banking financial institutions. Personal loans are becoming a popular choice of funding among borrowers under the age of 35 and for loans lesser than Rs 50,000, despite the fact that they are available to all earning individuals for a wide range of loan amounts. While the pandemic reduced the demand for personal loans among young borrowers, millennial involvement in the personal loan market climbed from 27% to 41% in the last two years.
Benefits of personal loan
- The application process for personal loans is easy, and minimal documentation is needed.
- Pre-approved personal loans are available from most banks and NBFCs, and they avoid the requirement for loan application processing and personal loan eligibility checks.
- With a wide range of payback tenors, personal loans repayment arrangements can be rather flexible.
- A personal loan can be widely used for a variety of purposes. Personal loans, unlike most other types of loans, can be utilized to suit any financial need, including trip plans, medical costs, home renovations, debt consolidation, and even a short-term cash crunch.
- A personal loan does not necessitate any type of collateral or pledging.
Eligibility criteria for personal loans
- The borrower must fall within a specific age range, which ranges from 18-21 to 60-65 years old.
- Mostly available to salaried employees of well-known MNCs, public or private organizations. Self-employed applicants with proof of business existence, ITRs, and other financial documentation are also eligible for personal loans.
- The applicant must have the necessary KYC and other documentation on hand.
- Personal loans are typically exclusively available to Indian citizens.
- For personal loan acceptance, most lenders impose minimum income requirements.
- It is necessary to have worked or owned a business for a certain amount of years.
- When accepting the loan and determining the amount, interest rate, and tenure, the applicant’s CIBIL score is also taken into account.
Documents required for a personal loan
- Aadhaar, PAN, Voter ID, Passport, and Driver’s License are all examples of KYC documents.
- Employment Identity proof.
- Salary slips.
- Bank statement.
- Passport size photo.
- Income tax return.
- Proof of business.
- Financial statement.
Where are personal loans used?
- The amount of EMI you’ll have to pay each month. The amount of the loan, the interest rate, and the loan’s tenure will decide this. For a particular loan amount and interest rate, the EMI will be greater for a shorter loan term and lower as the loan tenor lengthens.
- The time it takes for a personal loan to be processed and disbursed is critical, especially if the need is urgent. In most cases, the lending process is speedier for the lender’s account holders.
- The personal loan’s interest rate is critical because it determines your borrowing costs. The interest rates charged by different lenders vary. The RBI’s interest rate, on the other hand, has an impact on interest rate variations. You can compare several lenders based on the interest rates they provide.
- A loan may include additional costs, such as loan processing fees, stamp duty, and credit assessment fees, in addition to the interest rate. If these incidental charges are substantial, your overall borrowing cost may rise.
- Personal loans are widely available but choose the proper loan amount carefully. Excessive debt might raise your EMI and damage your ability to repay. Calculate the amount you require, the EMI you will be required to pay on a regular basis, and your current financial commitments before deciding on a loan amount.
- When taking out a personal loan, be sure to read the lender’s terms and conditions. Some of the terms and conditions commonly seen in personal loan papers include prepayment policies, part-payment acceptance, foreclosure, redrawing of funds, chargeable services, and so on.
Personal loan foreclosure
- If your lender does not offer an online foreclosure alternative, you will need to go to your local bank and complete pre-closure paperwork.
- You must provide your KYC documents, loan documentation, and a bank statement showing your most recent EMI payments.
- After you’ve submitted the form and all of the required documentation, you can pay the balance by check, demand draught, or cash.
Things to avoid while applying for a personal loan
- Do not apply for personal loans in several places or in a short period of time after being rejected. Your credit score may be damaged in any instance.
- When applying for personal loans, make sure to disclose all outstanding debts.
- Don’t only look at the interest rate. Terms and conditions, as well as other fees, play a role in determining the cost of borrowing.
- Always choose the most economical EMI over the cheapest EMI. The lowest EMI usually entails the longest loan term and, as a result, the highest overall interest paid.
- To avoid the hassle of being turned down for a loan, find out if you are eligible for one before applying.