There could be times, when you are in an immediate need of funds, and to fulfil this requirement, a personal loan could be one of the best options. An increasing number of people are choosing this loan, because it is an unsecured form of borrowing. There is no need to submit collateral to the bank. Moreover, the loan is multi-purpose in nature. It means that you can use the funds for any purpose, be it a big-ticket purchase, for education, medical treatment, wedding, home repair, event, travel, emergency, or just about anything.
So how personal loans work? Here is all that you need to know about this borrowing facility.
What is a Personal Loan and Who Can Apply for It?
Specifically, personal loans are for salaried individuals. But there are a few tailored schemes for professionals such as doctors, CAs, lawyers, government employees, or employees from MNCs and top companies, etc. A personal loan is short-term in nature, ranging between 1 year and 5 years, or in some cases, 2 to 3 years, depending on the terms and conditions of the lending institution. The borrowing amount usually starts at Rs. 1 lakh and extends up to Rs. 1 crore.
Below-mentioned is the eligibility criteria for personal loans:
- The minimum age criterion for the applicant is 23 years, but a few financial institutions may even offer the loan to 21-year-olds.
- A credit score is a crucial factor to judge the eligibility of a borrower. CIBIL score is expected to be at least 700+ or 750+. It is difficult to find ideal personal loan offers for low credit score holders.
- Minimum net monthly salary should be Rs. 25,000. Minimum work experience must be 2 years, with 1 year employed with the current employer.
- The loan amount is determined on the income and repayment capacity of the borrower. Thus, lower your financial liabilities, higher the chances of getting a desirable loan amount.
- As a borrower, you must possess all the necessary documents required to apply for a personal loan.
Personal Loan Interest Rate
The personal loan interest rate starts at 10.99%. The rate of interest is finalized as per your individual profile: monthly salary, financial liabilities, age, employment status, credit score, etc. It also depends on the loan amount and chosen tenure. To get the lowest rate possible, you should maintain a good credit score. A prior good relationship with the concerned bank may be add-on to avail discounted rates.
- Higher the loan amount and longer the tenure, greater will be the interest payout on the total loan, and vice-versa.
- Shorter the tenure, lower the interest payout, but bulkier the EMIs.
- So, when choosing a loan tenure and amount, you have to choose which is suitable for your pockets because the interest rate as well and EMI amount depends on these two factors.
- If you can afford to pay greater EMIs on a shorter tenure, then go ahead with it, because you can save a lot of interest payment, as against loan taken on a longer tenure.
Documents Needed for a Personal Loan Application
Below-mentioned is a list of documents required to apply for personal loans in India:
- Age Proof: You have to submit one of the government-recognized proofs such as Ration card, Passport, Birth certificate, PAN card, Secondary school certificate of class 10, or Life insurance premium receipt.
- Identity Proof: You have to provide one of the government-recognized proofs such as Passport, Electricity bill, Voter ID card, driving license Employer issued ID Card, Ration Card, PAN card, telephone bill, Life Insurance Premium Receipt, utility bill, a title deed, etc.
- Address Proof: You need to provide one of the government-recognized proofs such as Government-issued employee residence proof, Ration card, Electricity bill, Ownership and Title deeds of property, Telephone Bills, etc.
- Photographs: You have to provide the latest 2 passport-size photographs.
- Income and Employment Proof: Latest 3-6 months’ salary slips, income proof statement, proof of employment, etc.
- Bank Statements: Recent bank statement of salary account of 1 year or 6 months.
Personal Loan Application Process
There are two ways you can apply for a personal loan:
- Online Application: Most of the banks and NBFCs have their own websites, on which you can drop an online application for a personal loan. There are aggregators as well who offer to connect you to the best bank or NBFC personal loan offers through their own website. On the websites of aggregators, you get to compare offers by different financial institutions, making it easier to take a call on a suitable personal loan deal.
Here too you can drop an online application, upload soft copy of documents, and apply for the loan. The process is swifter than offline procedure because you do not have to visit any branch, but avail a paperless loan from the comforts of your home. It takes less than 2 minutes to fill a personal loan online application and apply.
- Offline Application: In offline method of application, you have to visit banks and NBFCs to enquire about the personal loan offers, compare the deals, and then visit an institution you are sure to take a loan from. The customer executive will provide you with the application form, which you have to fill and duly signed, and attach the hard copy of required documents.
Personal Loan Disbursal Process
It usually takes up to 48 hours after loan approval to disburse the funds. In some cases, it may take longer. This is specifically when the applicant has not submitted proper documents or missed mentioning a few important details. The amount approved is transferred to the bank account of the applicant. So, whenever you apply for a personal loan, make sure to fill all the details correctly and provide the necessary documentation to avoid any delay in loan processing time.
A personal loan is the best option for salaried and certain self-employed professionals to meet urgent or short-term financial needs. Being a collateral-free loan, it can be used for any purpose you want. The above-mentioned information will help understand a personal loan and how it works, in detail, along with educating you about its eligibility criteria, rate of interest, tenure, application, and disbursal process.