We all are aware of the term Personal Loan. Many of us may have already taken one in our life time. But for those who are seeking personal loan for the first time & want to learn about it prior applying for it, this brief writing on personal loan can get you an answer to all your questionnaire/ doubts.
India has largest consumer data. In order to fulfil their financial needs financial institutions like banks/NBFCs has come up with multiple funding products. One such type of loan introduced to fulfil their short term needs and their immediate requirement of funds is- the personal loan. It is an unsecured loan which is easy to avail against the simple documentation of income source & without any collateral.
Advantages of Personal Loan
1) Fulfils immediate requirement of funds be it a house renovation or medical expenses or even children’s higher education.
2) No collateral required. Personal loan do not require pledging of any assets like gold, property, car, FDs or even insurance policies to avail the same.
3) Minimum documentation required – only KYC & income documents are taken.
4) No guarantor required.
5) It is a easy sanction and fast disbursement loan.
Eligibility Criteria for Personal Loan
The eligibility of the borrower largely depends on his income earnings and repayment capacity. There has to be a steady income inflow per month in order to qualify for the personal loan. The borrower needs to be at least 21 year old to apply for a personal loan. The substitute term for personal loan for the self-employed is the business loan. For self-employed a minimum of 5 years of business continuity is mandatory to apply for the personal loan.
Your net monthly income is the base to calculate your eligibility subject to your obligation (any other loan taken). Banks will restrict the EMI to 40-50% amount of the net income. However the loan eligibility calculations may differ from bank to banks/NBFCs. Also banks have set up a minimum income requirement criteria of the borrower which many usually range between Rs15000- Rs 20000 per month.
Personal Loan Tenure
Personal loan tenure is usually kept short and is provided for a period of 1 year to 5 years. At times even 7 years for few banks/NBFCs.
Minimum Loan Amount
The criteria for minimum loan amount may differ from bank to banks/NBFCs but most of them have set the minimum loan amount at Rs-30,000.
Rates Of Interest
The interest rates on personal loan are higher in comparison to home loan, car loan, gold loan, mortgage loan, etc because banks/NBFCs do not take any security to provide the personal loan.
Personal loan rate of interests are different for different banks/NBFCs and therefore it starts with 10.75% and can be as high as 23.00% depending upon income & profile of the borrower.
Processing Charges
Processing fees for personal loan is usually high at 1%-2.5% on the loan amount. Banks/NBFCs may alter or offer you with concessional charges if you have good banking relation with them. At times they may even waive the charges for you.
The only advantage with processing fee is: you need not pay the processing fee well in advance; it gets deducted from your loan amount.
Foreclosure Charges
Banks/NBFCs have set the conditions for partial repayment or foreclosure of the personal loan. A personal loan many a times comes with a minimum months of lock-in period wherein you are not allowed to close or make a part payment towards the loan.
Such pre-payment/foreclosure charges differs from bank to banks/NBFCs & range in between 2%-5% of the outstanding amount.
Tax Benefits
Personal loan has no tax benefits. But if you have taken a loan for home renovation, repairs or for construction of the residential property, you can claim the interest part as deduction under Section 24, provided you have substantial proofs such as legal documentation / receipts etc that can justify your claim for tax benefits.
Disbursement Time
The entire processing of personal loan is the process of maximum of 7 working days. You may either receive the loan amount via cheque or DD (demand draft) or the amount may directly be deposited into your bank account.
Personal Loan Balance Transfer
You are allowed to transfer your personal loan to other bank/NBFC with lower rate of interest. Provided all the existing bank/NBFC’s closure conditions are met.
Documents Required For Applying Personal Loan
1) Duly signed bank/NBFC’s form.
2) KYC Documents–passport size photograph, pan card, aadhar card, residential & office address proof.
3) Income Documents-For Salaried – latest 4 months salary slips, latest 2 years form 16 & latest updated 6 months bank account statement of the salary account.
For Self Employed – latest 3years ITR copy, latest updated 12 months bank account statement of all accounts (both current and savings account).
Along with the KYC and income documents a self-employed are also required to submit a copy of his business profile with business proof, business continuity proofs, business licence, etc.
4) Other Documents as may be required by banks/NBFCs.
However with the change in the technology a personal loan is now made instantly accessible to the salaried class in the form of pre-approved loans with the help of the lender Bank’s/NBFC‘s APP.
CONCLUSION-
In order you qualify for a personal loan it is very important that you need to have:
1) A good credit score. A Credit score of 750 and above is considered as a good credit score &
2) Healthy income source.
Since, because the banks/NBFCs do not take any security to provide the loan there is greater risk involved in personal loan. On the other hand, Instant personal loan is suitable when you are looking for smaller amount of loan but if you have higher requirement for funds, going for personal loan may not be suggested because of its higher interest rate & lower tenure which increases your loan EMI’s that further adds to the financial burden.
