Personal loans are amounts of money or financial resources received from a bank or financial institution for a variety of purposes, including significant investments, credit management, emergency needs, and so forth. Such debts or loans are normally compensated in monthly installments over a period of two to six years, although it may go further based on the contingencies or repayment responsibility.
Personal loans are unsecured loans where a bank lends you funds based on your credit history as well as no collateral is necessary. Personal loans, can have higher rate of interest than any other loan, such as a housing loan or a consumer loans, due to the level of risk associated with providing the money. Personal loans are available at various banks in the amount of Rs.50, 000 to Rs.15 lakh.
Factors to consider while choosing a personal loan::
In order to choose the best personal loan first you need to identify various characteristics on the basis of which you will evaluate the loans. Below mentioned are some of the key features that can help you to find out the best personal loan for you among the various available options:
- Lower Rate of Interest: The additional amount that you have to pay above the principal will be determined on the basis of the rate of interest that the lending bank charges you. The best personal loan offers a comparatively lower interest rate to you and therefore cost you less in comparison to other available options.
- Low Processing Fees:Processing fees are often charged on the basis of the amount of loan allowed to you. Lower the processing fees less will be the amount deducted from your total loan amount. It includes the administrative charges, documentation fees among others and are non-refundable amounts charged on personal loans.
- Method of Interest Calculation:The method used for interest calculation on the personal loan will also impact the total cost of borrowing personal loans. Generally two kinds of methods are used to calculate interest on personal loans- Flat balance method and reducing balance method. For the same rate of interest the reducing balance method calculates a lesser amount in the form of total interest payable. Thus, the best personal loan in this case will be one which uses a reducing balance method for interest calculation.
- Low Partial Prepayment and Foreclosure charges:A personal loan will be considered as ideal if the charges associated with its full-prepayment or partial prepayment are low. Both partial as well as full prepayment allows you to save a significant amount of money on the total interest amount. Lower partial or full prepayment charges imply more money left in your pocket.
- Easy and Quick Documentation Process:The documentation process in case of personal loan is quite easy and simple which makes it more favorable among the borrowers. So choosing a personal loan is not only simple and time saving but also involves shortest disbursal time.
- Flexible Tenure of Repayment: Most of the lenders offer personal loans for flexible repayment tenure which varies from one year to five years (six years in some exceptional cases). You can repay the loan amount in EMIs within this time period as per your convenience. In some cases you might get excess facility by way of bullet payment which is a desirable option for applicants who have enjoyed seasonal cash flows.
Documents required for a personal loan:
- Passport, driver’s license, voter’s ID, and PAN card are all acceptable forms of identification (any one)
- Proof of Address or Adhaar card
- Leave and License Agreement / Utility Bill (during the last three months) / Passport (any one).
- Financial statements over the previous three months (where salary/income is deposited).
- Pay receipts for the previous three months.
- Two photographs (passport size)
- Proof of Continuity in Current Job – Form 16/Company Appointment Letter (if salaried)
What is the Eligibility Criteria home loan?
Age: 21 years to 67 years for self-employed
Employment position: A working individual with a monthly earning of Rs. 22,000 or above
A CIBIL score of 750 or higher is required.
What are the different types of Personal loans?
Personal loans could be applied for many different things. The most common types of personal loans are listed below.
- Marriage loan: Rather than emptying your resources for wedding ceremonies or your special event, apply for a personal loan for weddings. It is used to cover all special occasion expenses and repay the money quickly.
- House renovation loan: This personal loan for home maintenance assists you in additional payments of upkeep, restoration, reconstruction, refurnishing, decorating, and other property infrastructure upgrades.
- Travel loan: Use a personal loan for traveling to finance family excursions and holiday packages in India or overseas.
- Medical loan: This loan, which has swift clearance and inexpensive personal loan rate of interest, can come in handy during medical situations.
- Debt consolidation loan: Combine all of your previous debts into a single loan to effectively monitor your monthly payments.
- University education loan: In addition to college tuition, a personal loan for higher education can help you pay other sections of your studies in India or internationally, such as housing, transportation, and school expenses.
- Basic personal loan this loan is ideal if you require any additional finances for a special occasion or for your kid’s schooling
1. When I apply for a personal loan, what should I take into consideration?
You must keep in mind to meet the following criteria before applying for a loan:
- Check to see if you’re qualified for the loan.
- Remember you collect all of the necessary documentation for the loan.
- If you’re needed to provide collateral, be certain you have it accessible.
2. What do I check for in a personal loan application?
Keeping these factors in mind when applying for a loan:
- Check for a rate of interest that is within your budget.
- Examine the bank’s repayment alternatives to see if they are suitable.
- Inquire about the processing cost and have an exact amount.
- Check to see if the bank has a dependable customer support team that can respond to questions at a later time.
3. Is there a limit to how much you can avail?
The highest sum you can borrow is determined by your earnings, career, and the bank’s evaluation of your credit application. Often, banks approve loans based on their calculations, ensuring that the EMI does not exceed 40% to 50% of your monthly earnings. When estimating the loan amount, banks often take into account any outstanding debts.
If you’re a business operator or self-employed, the bank will calculate the loan amount on the earnings you’ve made and register it on your profit and loss statement. If you are a hired employee, the bank will calculate the loan amount depending on your paycheck and some other obligations.
4. Are there certain foreclosure fees?
If you opt to pay off your loan before the maturity date, the bank might issue you foreclosure charges as a penalty. This penalty typically varies from 1% to 2% of the remaining balance.