Personal loan is a lump sum of money that you borrow from banks or financial institutions based on your past income and credit history.
Lenders approval for a personal loan is based purely on your creditworthiness.
Personal Loan is classified as an unsecured loan as no asset is kept as collateral / security deposit by the bank or financial institution.
To get a personal loan, you can approach any nationalised or private bank or NBFCs nearest to you. Make sure they charge less interest and processing fee in comparison to the market.
You can use the money for almost any purpose – that’s why it’s named as personal.
You might consider personal loan for any of these scenarios;
- Marriage
- Buying car or two wheeler
- Starting a business
- Unexpected expenses
- Medical bills
- Renovating a home
- Paying down high interest debts
Lender will issue a personal loan in a lump sum. You need to repay with fixed monthly payments over time.
You usually require paying a bank personal loan over one to five years.
How to get approved for a personal loan?
As personal loan is unsecured, lenders will evaluate your creditworthiness before approving your application.
You need to make sure of a good credit score and at least 3 years of income tax return before applying for a personal loan. Few NBFCs are even considering 2 years of income tax return if you have a good pay slip.
Credit score is calculated based on your previous loans histroy and late payments. A higher credit score can also help you process your application faster.
Based on your requirement, the lender will evaluate your income to make sure that you have enough income to repay your personal loan EMI.
While doing so they might look into your current debt, income tax returns, employment history, profession and income.
Here are the main factors affecting the disbursal of personal loan;
- Income – higher is better
- Number of dependents – higher number of dependents means your expenses are more and net income is less. Therefore, a higher number of dependents can decrease in the disbursal amount.
- CIBIL Score – above 750 is better
- Debt profile
Documents required for a personal loan
Here are the main documents required to get you a personal loan;
- Proof of identity – Passport, Voter’s ID, Driving License or PAN Card
- Proof of Residence – Passport or utility bills
- Proof of Income – Bank statement of salary account for the past two years, salary slips, form 16 and latest Income tax return.
- CIBIL Score – It’s your credit score based on your loan repayment and creditworthiness. CIBIL Score is one of the most important parameters that facilitate your loan approval. Banks, financial institutions carefully analyze your credit history before approving your loan application. High credit score increases your chances of getting a personal loan.
- Passport size photo
Your lender may ask for some more documents based on your past income history and creditworthy.
What interest rate and fee will you pay on a Personal loan?
This is what the lender charges to lend you money. Interest rate depends on market rate; it varies between 10.5% to 21.5%. Interest rate will change based on your credit profile.
Your monthly payment will be higher when the interest rate goes up. You need to compare lenders in terms of the interest rate they charge on personal loans.
In addition to interest, your lender might charge you processing fee, Foreclosure charges, Stamping charges, Collection charges, CIBIL report charges, Dishonor and late payment. You need to check it with the lender before applying.
Lenders offer personal loan terms between 24 to 60 months based on the money borrowed.
