Guidelines For Personal Loans
A personal loan is a financial tool individuals utilise to address various needs or unexpected expenses. It involves borrowing a specific amount from a bank or non-banking financial company (NBFC) based on pre-established terms and conditions. These loans serve diverse purposes such as covering significant purchases, consolidating high-interest debts, funding weddings or educational expenses, facilitating travel, and more. Typically, borrowers agree upon a fixed interest rate and repayment schedule. They provide quick access to funds, making them a convenient option for managing financial obligations. Overall, personal loans are a versatile solution for individuals seeking immediate financial assistance without collateral requirements.
Features & Benefits Of Personal Loans
- Personal loans offer financial flexibility without requiring collateral, unlike secured loans.
- Approval is contingent upon the borrower's creditworthiness, assessed through their credit history
- Unlike home or car loans, personal loan funds can be utilized for various purposes.
- Flexible repayment tenures, ranging from 12 to 60 months, cater to individual preferences.
- Minimal documentation, such as proof of identity, address, and income, streamlines the application process.
- Instant loan disbursement schemes expedite cash delivery within a few hours.
- Loan amounts are determined by factors like repayment capacity and income source.
- The loan amount can vary widely, spanning from Rs. 10,000 to several lakhs, depending on individual circumstances.
Personal Loan Interest Rates 2021
| Lender | Interest Rates (p.a.) |
| SBI | 9.60% |
| Kotak Bank | 10.25% |
| Axis Bank | 10.40% |
| IDFC First Bank | 10.49% |
| IndusInd Bank | 10.49% |
| HDFC Bank | 10.50% |
| ICICI Bank | 10.75% |
| Fullerton India | 11.99% |
| IDBI Bank | 12.00% |
| Bajaj Finserv | 12.99% |
| IIFL | 12.99% |
| RBL Bank | 13.99% |
Factors Influencing Personal Loan Eligibility
Credit Score
A credit score, a 3-digit representation of financial reliability, heavily influences loan approval. Lower scores diminish favourable loan terms and may lead to outright denials. Improving one's score before applying enhances approval prospects.
Monthly Income
Given the absence of collateral, monthly income serves as a pivotal determinant. Income prerequisites vary across regions, with metropolitan areas often having higher requirements.
Work Experience
Lenders favour applicants with substantial work experience, associating it with financial stability and savings. A minimum of 2-3 years experience, including at least 1 year with the current employer, bolsters approval likelihood.
Liabilities
Existing financial obligations, such as credit card debts or existing loans, affect loan approval. Lenders assess the debt-to-income ratio to gauge repayment feasibility. Excessive liabilities may deter approval, as they limit disposable income.
Age
Applicant age informs lenders about potential working years for repayment. Salaried individuals aged 23-58 and self-employed non-professionals aged 28-65 typically meet age criteria for loan approval.
Personal loan eligibility pivots on a multifaceted evaluation encompassing creditworthiness, income stability, work experience, financial obligations, and age. Understanding these factors empowers applicants to optimise their chances of securing favourable loan terms
When to Consider a Personal Loan?
Consolidate High-Interest Debt
Individuals facing challenges in repaying high-interest credit card bills or loans may opt for a personal loan to consolidate and pay off these debts swiftly, subsequently managing repayments through structured monthly instalments.
Medical Emergencies
In situations of unexpected medical emergencies where existing funds fall short, personal loans provide a timely financial solution. Instant approval options offered by some lenders prove particularly beneficial in urgent medical situations.
Education Expenses
Pursuing higher education often incurs substantial costs. Personal loans offer a convenient avenue to cover tuition fees, books, and other related expenses, ensuring educational aspirations are not hindered by financial constraints.
Down Payment for Assets
For individuals lacking sufficient savings to cover down payments on assets like homes or cars, personal loans serve as a bridge, facilitating the initial investment required for such purchases.
Business Financing
Entrepreneurs may utilize personal loans to address sudden business needs, such as inventory replenishment or fulfilling urgent client orders. The expedited process of personal loan approvals proves advantageous in time-sensitive situations compared to traditional business loan applications.
Wedding Expenses
Planning and executing a wedding ceremony entail significant expenditures. Personal loans offer a means to manage these costs, ensuring that celebrations proceed smoothly without financial strain.
Vacation Funding
Dream vacations often require substantial financial resources. Personal loans enable individuals to bridge the gap in funding, making it feasible to embark on desired travel experiences. Repayment can be managed post-vacation, allowing for enjoyment without immediate financial burdens.
In summary, personal loans present versatile solutions for addressing diverse financial needs, whether it's consolidating debts, handling emergencies, pursuing education, making significant purchases, financing business endeavours, celebrating life events, or fulfilling travel aspirations.
Eligibility Criteria
| Eligibility Criteria | Salaried Applicants | Self-Employed Applicants |
| Age | Must fall within the range of 23-58 year | Must be within the age bracket of 28-65 years |
| Income | Minimum monthly income of Rs. 25,000 | Annual turnover should be at least Rs. 40 lakh |
| Minimum Experience | Required tenure of 2 years with the current employer, with a minimum of 1 year in the current position | A minimum of 2-3 years of business experience, with continuity in the current business endeavour |
Documents To Keep In Handy
| Documents Required | Salaried Applicants | Self-Employed Applicants |
| Application Form | Completed application form along with a recent photograph | Duly filled application form accompanied by a current photo |
| Identity & Residence Proof | Valid identification and address proof | Documentation verifying identity and residential address |
| Bank Statements | Last six months' bank statements | Bank statements for the preceding six months |
| Processing Fee Cheque | Cheque for processing fees | Processing fee payment via cheque |
| Salary Documentation | Latest salary slip and Form 16 | Proof of business existence and financial standing |
| Other | - | Business profile along with three years' Income Tax Returns (both personal and business) |
| - | - | Comprehensive financial documents: Profit and Loss Statements, and Balance |
EMI Calculator
A personal loan EMI calculator is a valuable tool for estimating your monthly repayment obligation to the lender. By inputting key values such as the principal loan amount (P), loan tenure (N), and interest rate (R), the calculator provides insights into your EMI, aiding in budget planning.
Key Considerations
Interest Rates
Given the unsecured nature of personal loans, interest rates may be comparatively higher. Borrowers must assess whether a fixed or variable interest rate aligns with their financial strategy, considering options offered by banks or NBFCs.
Penalty Charges
Timely repayment is crucial to avoid substantial penalty charges imposed by banks and NBFCs for delayed EMIs. Borrowers should prioritize adherence to repayment schedules to mitigate additional financial burdens.
Necessity Analysis
While personal loans offer financial flexibility, borrowers should evaluate the necessity of borrowing. Loans should be reserved for genuine and urgent needs, and alternative financial management strategies should be explored where feasible.
Application Process
Eligibility Check
Before applying for a personal loan, individuals should assess their eligibility based on criteria such as income, age, and creditworthiness.
Research & Shortlisting
Conduct thorough research on personal loan offerings from various lenders to identify favourable terms. Shortlist lenders that align with your financial goals and requirements.
Application Submission
Visit the chosen lender's branch office or their website to initiate the application process. Complete the application form and attach the necessary documents as per the lender's requirements.
Document Submission
Upon applying, the lender will review your documents and assess your eligibility. Ensure all required documents are provided accurately to expedite the process.
Decision & Disbursement
The lender will evaluate your application, considering factors such as credit score and financial urgency. Once processed, the lender will notify you of their decision within the specified timeframe.
With the advent of digital platforms, applying for a personal loan has become more accessible. Online applications streamline the process, eliminating the need for multiple visits to the bank. Upon acceptance of loan terms and conditions, the lender collects necessary documents and proceeds with the loan evaluation process, culminating in a decision communicated to the applicant.
