What is a Personal Loan? Here's All You Need to Know

Are you interested in buying yourself a car, building your haven, or living your fantasy wedding but are bound by the monetary prerequisites? 

Are you still pondering which type of loan will suit your requirement the best and offer the most reduced financing cost?

Personal loans can help you finance most significant buys, from a wedding band to home fixes, regularly at a lower fee than paying with a Visa or a credit card. In fact, in case you're left with an exorbitant interest on your Visa, you can take a personal loan to balance the equilibriums, consequently eliminating the problem of shuffling an excessive number of regularly scheduled installments without a moment's delay. 

However, similar to any other monetary indulgence, personal loans come with their set of baggage, including charges and loan costs. As a customer, you need to be informed and make a calculated decision before applying since they can affect your credit rating and general financial wellbeing. 

Let’s gain more insights into the features of this facility and learn what is a personal loan.

What is a Personal Loan?

Personal loans can be seen as unsecured loans, taken by people from a bank or a non-banking financial company (NBFC) with the sole reason of finding quick solutions to their immediate financial needs. In case you're anticipating choosing a Personal Loan for yourself or simply need to be thoroughly informed on the subject, here’s what you need to know.

Not falling in the likes of a Visa or a credit card, a personal loan delivers a one-time instalment of money to borrowers. The exact amount with an additional interest rate is taken care of by the borrower by making smaller monthly payments divided over time, referred to as the tenure of the loan. 

Because of the ascent in the number of options present, there are many quick, simple loan choices made available in the market today, and most of these lenders take less than 15 minutes to apply online. It’s that quick and easily made available resource that holds power to help stabilize your balances and upgrade your quality of life. 

Similar to any other term of the loan, a personal loan also charges interest. You may likewise run into different kinds of charges, for example, a processing fee that gets removed from your credit sum whenever you apply for the loan, and it is initiated, or a prepayment expense made for taking care of the loan before the finish of your term. The typical two-year personal loan APR is at present starting at  9.34% at an average offered by most financial institutions. 

Best Personal Loan Options in India 2021

To get a better insight into the options available in the market before you decide your pool and make a jump, let’s compare the ongoing rates:

Benefits of Personal Loan in India

The booming reputation of this loan in India today is due to its seamless transaction and unimaginable scope for the borrower. Here are some regarded benefits of a personal loan:

• Simplified Documentation

Unlike a secured loan, the application process of a personal loan is relatively simple. With the introduction of the digital era in our lives and everything made available at the tap of a finger, the process of getting verified and applicable for a personal loan has fastened up. 

The documents needed are fundamental and can now be transferred alongside your application online without any concerns, in short, hassle-free. This makes the interaction paperless. Furthermore, a few banks give the option of a doorstep record assortment to provide complete ease. 

The usual documents needed are verification of age, address, employment and income records, creditworthiness, and more. Since the loan is given purely on the judgement of your credibility, the data asked for is needed to work as a guarantee of your stated facts.

• Available on your phones

Gone are the days when you were required to visit a specialist at their branch day in and out to process your application. You need not worry about your appointment, standing in long queues, and investing added time and effort just to pass your loan request. 

With the digitisation of absolutely everything, you can apply for a personal loan online at the accommodation of your PC or your mobile phone through the registered apps and websites at your own time and convenience. The verification of documents, the procedure of application, support throughout the process, and final crediting of the amount is now a seamless and swift process that all takes place in less than 15 minutes.

The interaction needed to apply for a loan is getting progressively smoothed out, simple and clear. On the off chance, if during the tenure, you face any issues or have any questions, you can quickly call the loan specialist at their customer care centre. With multiple options available in the market, each firm is going out of its way to ensure you get served only the best and with utmost convenience and leisure.

• Quick transfer of funds

It’s a fast-moving world, and time is now equivalent to money. Understanding the urgency of taking the loan and meeting your obligations quickly and smoothly, the process from end to end of applying for a personal loan has been progressed to be done in under 15 minutes. That’s right! In less than 15 minutes, your entire solution is made available, including the first sign up to the amount being credited to your account.

• Tailor-made for you

Personal loans are adaptable and can be altered for a large group of requirements like home redesign, travel, wedding, and health-related crises. These credits can be made entirely custom, including the amount of loan and the repayment tenure, interest rate, and so on, depending on the borrower’s particular necessities and paying limit. Today, most of the banks have clear, pre-set categories like Home Renovation loan, Wedding loan, Medical Emergencies loan, and so on, planned solely to fit your requirement. Additionally, loans are given at different interest rates depending on the quantum of the advance, residency and comprehensive appraisal of the borrower's credit record.

• No collateral needed

Most personal loans fall under the category of unsecured loans, meaning that no collateral or valuable asset is needed for the application. Thus, there is no necessity to pledge anything as security in default or non-instalment of the repayment.

Consequently, one can see the conspicuous personal loan advantages as the surefire approach meets any monetary need at hand. There is a loan made available for each need, want, wish, objective and dream.

Types of Personal Loan in 2021

• Home Refurbishing Loan

Made to support your decision to design restorations, make tweaking, or remodel your home occasionally. Personal loan turns into your brilliant choice of being ahead in the game and meeting your furnishings and binding installation commitments at home without including any strain on your wallet.

• Wedding Ceremony Loan

Weddings can be a costly undertaking that can become an additional pressure with regards to finances despite being a happy occasion. With a personal loan taken, the whole event gets easily covered, and a similar sum can be paid in more modest establishments over a decided duration of the tenure.

• Loan for Education

The most widely recognized and undertaken type of personal loan is selecting one to cover the costs of your kid's schooling or that of yourself. With a lower pace of interest and a bigger residency of up to 15 years, it covers the entire scholastic cost and makes it simpler for you to deal with your everyday accounts.

• Loan for Travel

Leisure in life is as important as the rest of the expenses for a wholesome upgrade in the quality of life. This particular loan helps to pay for your travel and stay expenses, with no stress of arranging for the amount in one go when you can quickly pay it back in smaller, more convenient and doable amounts over a while. 

• Pension Loan

Relevant for the retired people, this is planned with specific qualification criteria. Here, a retiree can get up to 7-10 times the worth of their current pension as an advance from a similar bank they attract the annuity from to meet particular quick prerequisites.

How Do Personal Loans work in India?

You can purchase a home with a home loan, buy a vehicle with an automobile credit, and pay for school with an understudy loan. Your home fills in as the security with a home loan, and so does the vehicle you're purchasing in the latter scenario. 

However,  a personal loan comes with no insurance. Since it is unsecured by its property, the banks face a more significant challenge and charge a higher financing cost than all the other secured loans. The specifications of these interest rates will rely upon various elements, including your credit rating and debt-to-income ratio after taxes.

In India, it is preferred to have a CIBIL score (Credit worth) of over 700 to avail of maximum benefits being offered by the banks.

How to Apply for Personal Loan Online & Offline?

Online Application

When you apply for a personal loan online, you are straightforwardly buying it from the bank. There are no brokers included, and in this way, there are no additional expenses for the bank, for example, a specialist commission. 

With the online strategy, you can ascertain multiple loans utilizing an EMI calculator machine. Assuming you pick a short residency, you will pay a high EMI, yet the premium you need to pay the bank is less. However, on the off chance that you make your residency long, the EMI is lesser, yet you'll wind up paying the bank a ton of cash in revenue. A decision is purely dependent on your monthly disposable limit.

Online applications usually are extremely quick and with the verification of your qualifications take not more than 15 to 20 minutes to reflect the credited sum in your account. All you need is good internet and a digital device.

Offline Application

Visit the bank: Go to your nearby bank after comparing the costs and rates. You’ll be required to fill in an application form and make the submission along with the needed documents.

Talk to an Agent: For the customer’s ease, banks have agents who specially attend to the customers and sell them these loans. They are helpful and are there to guide you throughout the process. However, you do need to pay them a commission, with a flipside of getting better interest rates in return. 

Eligibility Criteria

For Salaried Individuals

• Age needs to be 21 or above.
• Age Should not be above 60 years at the time of maturity of the loan.
• The job/employment records need to show a minimum of two years of employment overall and over one year spent in the current organization.
• The minimum income bracket needs to be between INR 7,500/- to INR 15,000/-.

For Self-employed Individuals

• Age needs to be 25 or above.
• Age should not be above 65 years at the time of maturity of the loan.
• The Startup/business needs to be up and running for a minimum of 3 years.
• The minimum annual income of your business needs to be up to INR 1,00,000/-

Documents Required

To apply for a personal loan, you need the following documents:

• The chosen loan application form
• ID Proof including valid voter ID card, driving license, PAN card or passport copy
• Address Proof including a valid copy of your passport, rental agreement, telephone or electricity bill, ration card, bank passbook or statement, driving license.
• Proof of age, including valid documents such as the passport, PAN card, or a certificate from a statutory authority.
• Form 16 from your employer
• Certificates of Income Tax Returns
• Salary slips or income statements for salaried and self-employed individuals, respectively

FAQs

✅ What should be my credit score to get a loan?

Your base credit score needs to be at least 600 or more. However, every bank has its criteria. It is often preferred to keep your CIBIL ratings of 700 or higher to enjoy better deals and appraisals.

✅ Do I need to be earning to be eligible for a loan?

Yes, in most cases, as a guarantee of your creditworthiness, your income statement is needed for submission as proof that you have repayment sources and capabilities.

✅ Do salaried individuals have a higher chance of getting a personal loan as compared to self-employed people?

Yes, stability of income and regular cash inflow are lucrative factors that help salaried employees get a personal loan faster. Also, they have a chance of getting a higher loan amount as well. But that said, if you are a well-established self-employed person with a steady income and ample proof to substantiate the same, you can easily get a personal loan.