Personal loans are an easy way for individuals to finance a long-term goal with a repayment schedule that is chosen according to their capacity. Moreover, the processing time and disbursal of the loan is relatively quick, which makes it an attractive option for those looking out for a quick financial fix.
A personal loan is a type of unsecured loan that is offered to the borrower without any collateral against the sum borrowed. The loan amount for which each borrower is eligible varies based on their income and repayment capacity.
1. Why are personal loans unsecured loans?
Unlike other types of loans that are taken out for a specific purpose such as buying a car or a home, personal loans can be taken to finance any kind of financial goal that one may have. Personal loans can be taken to renovate a house, fund a wedding or international holiday, and even consolidate debt.
2. What is the maximum amount that can be borrowed?
The loan amount that one is eligible to borrow varies based on their monthly income. When calculating the loan amount, a person’s monthly income and expenses are taken into account. Most banks offer a minimum loan amount of Rs.50,000. However, this amount can be lower in instances where the loan is taken from Non-financial Banking Companies (NBFCs).
3. Who is eligible to avail a personal loan?
Salaried and non-salaried individuals are both eligible to take personal loans. To be able to apply for a personal loan, the applicant must be at least 21 years old and cannot be older than 60 years (for salaried individuals). The upper age limit for self-employed individuals is 65 years. With regard to monthly income, the applicant should have a minimum monthly income of Rs.25,000.
4. How long does it take for processing and disbursal?
One of the advantages of a personal loan is that the processing time is very quick. The loan does not require a lot of documentation. In most cases, the applicant is required to submit their proof of address, proof of identification, and proof of income. A number of banks also pre-approve their customers for personal loans and in these cases, documentation may not even be necessary.
With regard to the disbursal of the loan amount, once the documentation and verification process is complete, the loan amount is disbursed within 48 hours. In some instances, banks provide a few select customers with instant loans that are disbursed within minutes of applying.
5. How do you repay the amount borrowed?
The repayment process for personal loans takes place in the form of monthly EMIs. The amount to be paid is inclusive of the interest charged on the loan. A number of banks set a standing instruction against the customer’s bank account and the monthly EMI is deducted on a specified date. Additionally, customers can also choose to repay the amount borrowed before the end of the loan tenure. Most banks require customers to complete a total of 12 months of EMI payments before opting to repay the entire loan amount. Banks usually charge a small fee as a foreclosure charge for loans that are repaid before the completion of the loan tenure.
6. What is the rate of interest charged?
The rate of interest for personal loans are usually a bit higher than those charged for other types of loans. This is because personal loans are unsecured loans. The rate of interest charged on a personal loan can range anywhere between 10.99% and 22% p.a. A number of factors come into play when determining the interest rate for a personal loan. Some of them include the tenure of the loan, the borrower’s credit score and repayment capacity. In general, individuals who choose a longer tenure for their personal loan tend to pay a higher sum as interest. Additionally, borrowers who have a poor credit score and repayment history tend to be charged with higher interest rates.
7. What is the maximum loan tenure?
The repayment tenure for a personal loan can range anywhere between 1 year to 5 years. The loan tenure is chosen by the borrower, taking into consideration other financial obligations. As stated in the point above, the amount paid in interest tends to be higher when the borrower chooses a longer loan tenure.
8. How does your credit score affect your loan approval?
Your credit score or CIBIL score plays a significant role in the approval of a personal loan. Most banks require their loan applicants to have a minimum credit score of 750 or above to be eligible for a personal loan. Furthermore, the CIBIL report also contains comments about missed EMI payments which is also considered when reviewing a loan application. The credit score and repayment track record are taken into account when banks and financial institutions are determining the maximum loan amount and the rate of interest charged.
9. Can you be a guarantor for a personal loan?
Most banks or financial institutions usually request for a guarantor to a personal loan when they are not entirely sure of the borrower’s repayment capacity. When you sign up to be a guarantor for a loan, you become responsible for making EMI payments of a personal loan in the event that the borrower is unable to do so. One crucial factor that should be kept in mind before agreeing to be a guarantor for a loan is that a missed payment by the borrower also negatively impacts your credit score.
Personal loans are extremely popular with a number of individuals who are looking to fund a few large purchases with repayment options that are convenient.