Personal Loan

A type of an unsecured loan, a personal loan is where the entire risk is undertaken by the bank or credit lender. This implies that you do not have to give any guarantee or collateral for taking this loan. Just think about it, what if you need to finance a holiday, renovate your home, pay a medical bill or pay for your destination wedding, all of this is possible with extra money in your hand.

Recently, there has been a rise in personal loans among millennials. The reason being - increasing cost of living and accommodation. The other reason is that banks and lending institutions have simplified the process of lending, especially when it comes to verification, documentation and payment terms.

Keeping all things in mind, one should also remember that a personal loan comes with a very high rate of interest. So, it is better to think about your financial liability before borrowing a personal loan. Failure to pay back the loan can not only affect your credit history, but also downgrade your CIBIL credit score.

Mentioned Below is a List of Benefits of a Personal Loan.

• Easy Documentation - With the advent of net banking and digitization, banks have developed the entire process of loan disbursal online and hassle free. Not only can you apply online, but certain banks already have pre-approved loans for salary holders.

• No Security - A personal loan is an unsecured loan, and hence, there is no collateral or a guarantor required. It is issued on the basis of your income payback capacity and credit rating.

• Flexible Loan Tenure - The loan tenure for a personal loan generally varies between 1 to 5 years. You are required to pay back the borrowed amount with interest every month in the form of equated monthly installments.

• Rate of Interest - The rate of interest for a personal loan is fixed by banks. Furthermore, the rate of interest is also dependent upon your occupation, income, credit report and loan tenure.

• Easy Loan Disbursement - If you have a good relationship with your bank and the bank feels that you have successfully maintained a sound financial history. The loan will be released as soon as possible without any delay.

• EMIs - Equated monthly installments make it easier for you to pay back the loan amount. Ensure that you do not miss out any of the EMIs.

The eligibility criteria for a personal loan largely depends upon your income in hand and credit score. Additional criterion varies from bank to bank. Mentioned below is the mandatory eligibility criteria across all major banks:

• Age Limit - The standard age limit is 21-58 years of age for a salaried person, while it stands at 25-65 years for a self-employed person.

• Nature of Employment/Employer - This ranges from salaries, self-employed, government employed professionals. Additionally, if you are employed in a prime company with a high ranking credit rating, you are more likely to get a personal loan.

• Monthly Income - This factor highly affects the limit of loan amount. Most of the major banks and lending institutions require a minimum of ₹25,000 per month as in-hand income, for issuing a personal loan.

• Term of Employment - This means the number of years you have been stably employed. You require at least two years’ of work experience with proper income and one year from your current employer.

• Credit Rating - A credit rating comprises of a credit information report and a credit score. These two factors help in evaluating your credit history and creditworthiness as a potential borrower in the eyes of banks. Also, having a higher credit score can enable you to get a higher loan amount or credit limit with favorable terms and conditions for a loan. A good score of 700 and above is preferred by most of the banks.

• KYC - These include the basic ‘know your customer’ documents required for a personal loan. These are Proof of Identity, Proof of Address, age proof, salary slips, income statement, credit report, Income Tax Returns and Form 16. These documents are to be submitted along with the duly filled/signed loan application form.

In order to apply for a personal loan, follow the mentioned steps.

• Check your eligibility criteria, especially your credit score and rating.
• Visit your preferred bank or lending institution.
• Apply for a personal loan application form.
• Submit the necessary documents - KYC and income statements.
• Post submission, the bank will check your CIBIL record and send the application for a physical verification at your mentioned proof of address.
• The physical verification is not required in case you meet the basic criteria and the bank is satisfied with your eligibility.
• Post verification, the loan amount will be transferred into your bank account.