Increasing number of people are taking personal loans for their big-ticket purchases. People are also converting their purchases into EMIs. Personal loans are helping households meet any shortfall in their children’s higher education, in buying a house or a car, or in cases of medical emergencies, among other things. So, we know that personal loans are good. Let us understand them better here.
What is a personal loan
Simply put, a personal loan is an unsecured loan taken from a bank or an NBFC to meet your personal needs. It is offered on the basis of criteria like income level, repayment capacity, credit score, employment history, etc.
Unlike a car or home loan, a personal loan is not secured with any collateral. As the personal loan is unsecured and you do not put up any collateral like property or gold to avail it, in case of a default, the lender cannot auction anything that you own. Therefore, the interest rates on personal loans are higher than that on home, gold, or car loans. There is a greater perceived risk while sanctioning them.
Nevertheless, like any other kind of loan, defaulting on a personal loan does not do any good. The defaulting gets reflected on your credit report and causes problem for you in the future when you apply for other loans or credit cards.
For what purposes can personal loans be used
Personal loans can be used for any personal financial requirement that you have. The lender does not monitor how you use it. It can be used for marriage-related expenses, a foreign vacation, renovating your home, purchasing latest electronic gadgets, your child’s education, meeting unexpected medical or other such emergencies.
You can get instant loans for fixing your car, down payment of new house, investing in business, etc.
Eligibility criteria to get instant loan
Eligibility criteria to get instant loans varies from bank to bank but the general criteria include your income, age, occupation, place of residence, and capacity to repay the loan.
To avail a personal loan, you must have a regular source of income whether you are a self-employed individual, salaried individual, or a professional. Your eligibility is affected by the company you are employed with, your credit history, etc. factors.
Loan duration and disbursal for personal loans
The duration for which you can take the loan ranges from 1 to 5 years. Shorter or longer tenures might also be allowed on a case by case basis.
As for the disbursal, a personal loan gets disbursed within seven working days of the application of loan. Once approved, you can receive either an account payee cheque/draft equal to the amount of loan or get the money automatically electronically deposited into your savings account.
Some FAQs on personal loans
From which financial institution must I borrow a personal loan?
It is a good practice to compare loan offers from various lenders before settling on one. The key factors you must consider while deciding on your loan provider are loan tenure, processing fees, interest rates, etc.
How do lenders decide the maximum loan amount?
The loan sanctioning criteria differ from one lender to another, but the key factors that determine the maximum loan amount that can be sanctioned to you include your current income level, credit score, and your liabilities. A credit score that is close to 900 depicts that you have serviced your previous credit card dues or personal loans properly making the lenders think that you are a safe borrower. This in turn, can help you sanction a higher loan amount.
Your current income level and liabilities like your unpaid loans, outstanding credit card dues, current EMIs, etc. have a direct impact on your repayment capacity. So, if you have a large amount of unpaid dues or outstanding loan EMI, or if you are in a lower income bracket, you are sanctioned a lower personal loan amount.
While finalizing a loan provider, should I always go with the one offering the lowest possible EMI?
Low EMI offers typically are a result of a low interest rate, a long repayment term, or a combination of both the factors. So, sometimes, you may pay more interest to your lender when you choose low EMIs. You must use online tools such as the personal loan EMI calculator to find out your interest payout over the tenure and your repayment capacity before taking a loan.
What is the minimum personal loan amount that I have to borrow?
The exact minimum amount varies from one institution to another. But most of the lenders have their minimum personal loan principal amount set at Rs 30,000.
How much money can I borrow with personal loans?
The extent of money that you can borrow with a personal loan depends on your income and varies based on whether you are self-employed or salaried. Generally, the lenders restrict your loan amount so that your EMI is not over 40-50% of your monthly income.
If you have any existing loans being serviced, then they are also considered while calculating your personal loan amount. For self employed, the loan value is figured out basis the profit earned from the most recent acknowledged profit/loss statement taking into account liabilities like current loans for business, etc.
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs