A personal loan is a short-term, fixed-interest loan given by a financial institution to an individual to assist them pay for personal expenses such as a wedding, home repairs, education, or vacation.Personal loans in India are typically unsecured loans, which means that borrowers are not required to provide any security or collateral in exchange for their funds. Consumer loans are defined as loans for which borrowers agree to pay a predetermined interest rate over a specified period of time.
Some Indian financial organizations offer secured personal loans, which allow clients to obtain a financial grant sanctioned by a financial company in exchange for pledging collateral, which could include personal property, real estate, or jewelry, among other things.Let’s look at how you can receive a personal loan in India and what you should know before applying for one.
To Get a Personal Loan, You’ll Need the Following Items
When you have a good credit history, getting a personal loan is simple. If you want to apply for a personal loan, make sure these boxes are checked on your credit profile:
A credit score is a three-digit figure ranging from 300 to 900 that a credit reporting organization calculates after analyzing a credit profile or an entity’s creditworthiness.Consumers must maintain a solid credit score by meeting their financial responsibilities on time in order to qualify for a personal loan in India. For a personal loan, a good credit score is between 700 and 750.You may see a dent in your credit score if you have failed on any monthly installment loan for products or services acquired in the past. When qualifying for a personal loan, this could be troublesome.
Consumers should keep in mind that financial institutions are interested in your ability to repay and examine the stability of your income when applying for personal loans.If you work as a salaried employee, you must have received a salary for the previous six months before to applying for the loan. Institutions examine your wage data to determine your ability to meet your interest payment obligations.For individuals who own a firm, it must have been in operation for at least three years. Institutions look for your business’s income tax returns to assess the strength of your credit repayment capabilities.
Financial organizations allow consumers of legal age to apply for personal loans.In general, an individual’s age can range from 18 to 65 years old in order to apply for a loan, while different lenders may have varied age requirements.
Term of the Loan
Personal loans are short-term loans that are intended to be repaid in a short period of time.In India, personal loans are typically issued for a period of 12 to 60 months. Your monthly repayment installment varies depending on the length of your loan.
A shorter term loan has a larger monthly payment, while a longer term loan has a lower monthly payment, and you must choose between the two based on your ability to repay the debt.
Amount of Loan Disbursement
In general, there is no limit to the amount of money you can borrow with personal loans. The amount of loan you are qualified for is determined by your income and, if applicable, any existing loan obligations.A financial entity considers the monthly repayment installments, which should not exceed half of your earnings, and determines whether you can afford to pay the monthly installment without sacrificing other expenses.While banks require a minimum loan amount of INR 30,000-50,000, non-banking financial organizations (NBFCs) that offer smaller personal loans require as little as INR 3,000. The maximum loan amount available is entirely dependent on the lender’s assessment of your capacity to meet loan criteria.
The Costs of Taking Out a Personal Loan
Before you take out a personal loan, you should be aware of five fundamental expenses that may apply to your loan.
Rates of Interest
On your loan, an interest rate is applied. This rate is in addition to your loan’s principle amount, and it typically ranges from 10% to 25%, depending on your creditworthiness and loan amount.
Fees for processing
A processing fee, also known as origination costs, is the cost you pay to get your loan processed by a financial institution. Depending on your financial institution, this fee ranges from 1% to 3% + taxes.
Charges for Advance Payment
If you choose to repay your loan early, the financial institution will charge you a prepayment penalty. This ranges from 5% to 8% and varies from one entity to the next.
Charges for Refinancing a Loan
If you get approved for a loan and then decide to cancel it, your lender will charge you a fee. These fees are governed by the policies of individual companies.
Bounced Monthly Instalment Payment Fees
If the stated monthly amount is not deducted, all banking institutions incur a bounce fee. It doesn’t matter if it’s a check or a bank account standing directive. You must pay a penalty if your monthly payment is not made on time and the cheque fails or the request is denied.Depending on your lender, this can range from INR 300 to INR 500.
Types of Personal Loans Available
In India, the use of secured personal loans is rare, and most personal loans are unsecured.
Personal loans are available in a variety of forms, including:
Loan for Medical Treatment
Personal loans are accessible in India for medical situations. You can apply for a quick personal loan for medical purposes if you don’t have medical insurance or can’t get help from your insurer.
a loan for education
Education loans are among the most popular personal loans in India, and they are frequently obtained by parents who have the financial stability to persuade a lender to give a loan. Once the student’s education is completed and they find work, the loan is transferred to them to repay.Education loans are commonly accepted in India, and they are frequently used for higher education. There is a provision for parents who want to take out a personal loan for their children’s education.
Loan for a Pension
These loans are intended for retired military members who need money for personal reasons. The conditions for personal loans are different for these types of loans because the repayment is generally based on the pension that retirees receive rather than their current source of income.
Loan for Debt Consolidation
You can take out a debt consolidation loan if you have many loans and want to make handling them easier. All of your loans are bundled together in this type, and you are expected to make a single monthly installment rather than many ones for various loans.
Loan to supplement your income
You can get a top-up loan from your financial lender if you already have a personal loan. When compared to personal loans, top-up loans have a higher interest rate.
Home Improvement Loan
Renovations to your home can be costly, and you may not have the financial means to make necessary changes to the outside or interior appearance of your property.
Weddings in India are frequently expensive, as the country spends a substantial portion of its budget on wedding decorations, food arrangements, and gifting items for guests, newlyweds, and their families.Personal loans are one of the most frequent types of personal loans used by Indians to finance their wedding expenses.
Loan for Travel
India is progressively transitioning from a savings economy to a consumer economy, and travel as an experience is gaining popularity.In the last 5-6 years, the country’s young population has traveled far more than their parents, boosting the popularity of travel loans as top personal loans.
Transferring the balance of a personal loan
You may desire to pay off your existing personal loan at a cheaper interest rate as interest rates change. This can be accomplished by applying for a new loan with a lower interest rate and repaying the previous one.Such transfers are subject to fees, and you should check with your lender to learn more about the terms and restrictions.
How to Get a Personal Loan: A Step-by-Step Guide
The application process for a personal loan can be completed in person or through an online application. In both cases, digitization has made it possible to compare loans and fees associated with them in advance and make an informed selection.
Follow these steps to apply for a personal loan:
Choose a lender.A few things can help you find the best suited personal loan lender:Is your lender willing to give you a loan for the amount you need?
Optimum Fees: Do you have any extra fees in addition to the interest your lender charges on your loan? Are they correct, if so?
Trustworthiness: Are their online declarations transparent and match the information provided by their executives?
Compatibility: What are other people saying about the lender, either through word of mouth or internet reviews?A comprehensive search and comparison of several financial lenders who offer personal loans will dispel any doubts you may have about which lender best meets your needs. This is the most vital stage because keeping your credit score high requires you to honor each loan agreement.
Choose a Personal Loan
After you’ve chosen your lender, you can compare major expenses to choose the loan they’re offering:
Interest: Does the loan’s interest rate fit within your monthly budget?
Additional Fees: Are you being charged properly for loan processing, documentation, or registration?
Add-ons: Does your lender provide you with savings on other financial items like insurance?
Taxation: Is your lender planning to levy any additional taxes on your personal loan, which you’ll be filing an income tax return for anyway?
Produce the documents that the lender is looking for.
Appropriate documentation guarantees that your loan disbursal period is minimized, so make sure you have all of the following documents ready ahead of time:
Proof of Identity: Aadhaar cards, PAN cards, driver’s licenses, and passports are accepted as proof of identity in India.
Proof of residence: Aadhaar card, energy or water bills, and a driver’s license are all acceptable forms of proof of residence.
Proof of Income: For salaried employees, lenders may ask for the latest three to six months’ worth of pay stubs, while for business owners, income tax returns from the previous three years are typically requested.
Photograph: Lenders do not offer personal loans to third parties, and a photograph verifies that the person who applied for the loan is the same person who will return it.
Fill out and submit your application form
Once you have all of your documentation in order, you can apply in one of two ways:
Offline: Physically visiting the financial organization lending you the personal loan’s nearest branch or headquarters.
Online: Fill out all of the required information on the lender’s website using digital know-your-customer facts, which most financial institutions accept as legally acceptable paperwork.
After you’ve received your loan, make sure to follow up on it.
Giving the lender the time frame you requested for completing your loan application is an excellent approach to keep track of it. You have two options once that time has passed:
Verification: Ask your lender if they’d like to double-check any information you’ve provided.
Seek clarification: Request an update on the progress of your loan application from your financial institution. This can be done online, over the phone, or in person at the lender’s office.
Follow the protocol: It’s possible that your lender will need more time to double-check the information you’ve provided. When you don’t put pressure on your lender to give you a loan, the follow-up procedure can go smoothly.
Keep Hope: If your loan application is denied, don’t give up; instead, find another acceptable lender to submit your request to. Consumer loans are provided by banks, non-banking organizations, and fintech startups in India. A lender is not obligated to locate you a good match, and vice versa.
Act Quickly: If your loan is granted, you must act quickly to obtain the loan amount, as interest on the loan begins as soon as the lender processes the papers.