A personal loan is the most feasible way to fund something you cannot afford. It is the easiest form of financing you can have to fund your child’s higher education. Or you can have a wedding at an exotic location. It is there for you to deal with an unexpected medical event. You may also apply for a lower interest on your loan. This, however, will depend on the type of financing you plan to have.
Personal loans, in general, are unsecured. This implies that the rate of interest is going to be quite high. Even then, the easy availability of a personal loan makes it the most preferred choice of financing when in need of a large amount. When combined with the freedom to use it in the way one wants, no one will even look further.
This comes up with the next question.
Are tax benefits claimable on a personal loan?
The amount you avail of as a personal loan does not come from your own income. And you are not required to pay income tax on it. But this applies only when you get the financing through a recognized bank or a non-banking finance company like PaySense. The funding you may receive from your friends or family is treated as your own income. And it is taxable.
Getting tax benefits on a personal loan is slightly difficult. This stems from the fact that personal loans are unsecured. And they fall in the category of optional expenditures. You can get such savings on your loan amount only if the loan is used for the following purposes:
For buying or building a residential property
Section 24 (B) of the IT Act states that you receive tax benefits if you use your personal loan to buy or build a residential property. If the property is offered for rent, there exists no limit on the amount you can avail of a tax benefit. But if the property is for you to reside, the maximum available tax benefit is INR200000.
For you to expand your business
You may use the personal loan you avail of to fund the expansion of your business. This, as an unwritten rule, is to boost revenue generation for your firm. In this instance, you can avail of a tax deduction on the interest you pay for the loan availed.
For buying assets
Buying the assets like jewelry makes you eligible for tax benefits on your personal loan. The rate of interest on your loan to avail the asset is treated as its cost. And you can apply for tax benefits from them when you sell them.
Tips to remember
Follow the tips below to receive your loan at the earliest:
- Apply for a loan only when it is a must
Apply for a personal loan after a thorough evaluation of your requirement. Assess your current debts and your income. Getting a loan fulfills a requirement. But it comes as added burden on your monthly income. You have to repay it on time to avoid extra charges. Avail of it only if you can pay on time without draining your sources of revenue.
- Do your own homework
Financial institutions that offer personal loans abound in number. Some even may make claims that are too good to be true. If something is incredibly appealing, there will always be a catch to it. Browse the Internet on your options. Prepare a list of a few that you feel would work for you. Do in-depth research on such lenders and choose the one that fits your requirements. See to it that the financial institution is a reputed firm with a good track record. PaySense is one such seller worth trying.
- Check the rate of interest
When you apply for a personal loan, all the lenders will come up with attractive rates of interest. But the appeal is superficial and deceptive. The actual rate of interest when you take the loan may be beyond your means. This happens because lenders often advertise their most attractive rates of interest available. They do this taking several factors into account. The loan term, the amount is taken, and the borrower’s credit score is among them.
The smart option is to evaluate your requirements and check the interest rate accordingly. Certain lenders may offer attractive rates of interest on certain types of loans taken for a specified term period. Know what you need, match it with the rates of interest available and decide accordingly.
Your eligibility for a personal loan depends on several factors. Your income, age, and work experience are some among them. Every lender will have its own specific personal loan eligibility requirements. The best option is to visit the official portal of the lender of your choice, check such requirements and take an informed decision. You may also use online calculators for this purpose. Certain lenders like PaySense will even have personal loan apps to assist in your efforts here.
Whatever is the scenario, the following factors will have the final say in determining the availability of such a loan for you:
- Your credit score: As you know, a personal loan is unsecured. Thus lenders use your credit score to determine your reliability as a borrower. They check your EMI payments and other information available on your plastic card for the purpose.
- Your existing liabilities: Your prospective lender would want to know if you have any existing loans. The firm or person will check it in detail. This is done with a view to calculate your debt-income ratio.
You need to submit the following documents before you can avail of a personal loan:
- PAN card
- Proof of identity; driving license, passport, etc.
- Proof of your signature
- Proof of address like ration card
- Bank statements of six months
If you are an employee, you should submit salary slips for three months, and IT returns as per Form 16.
If you are self-employed, you should submit documents depending on the type of your venture.
Apply for a personal loan if you have the income and are eligible to do so. Your tax benefits alone will repay at least part of it. If your choice falls on PaySense, availing of a personal loan is a breeze!
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs