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A personal loan is an unsecured loan which can be used for multiple purposes. From buying your favourite gadgets to running your small business, a personal loan can be handy. Being a popular loan among all loans, it is easy to apply and get a personal loan just from wherever you are, in a click of a button. The loan amount and interest rates on a personal loan are fixed based on the borrower’s credit eligibility.
Though a personal loan offers a complete flexibility in end-use, there are different types of personal loans catering to varying needs of the borrower. Term on some loans could be different than the normal personal loans offered by banks. For example, a personal loan provided for agriculture and allied activities may carry interest subsidy and relaxed terms than a typical personal loan.
Unlike other loans, a personal loan comes with complete flexibility in end-use. You can use your personal loan for any reasons; be it a medical emergency or to go on your dream vacation. The lender does not question you about the purpose of your borrowing. You have the liberty to use the money for all legitimate reasons.
No Collateral :
The personal loan is popular among all loans as it does not require any collateral. The banks and NBFCs provide personal loans just based on your credit eligibility and income without having to pledge any security. This is the most attractive feature of a personal loan.
Quick Disbursal :
Gone are the days where one must wait for days to get a loan from banks. With just a click of a button, you can get the loan amount deposited in your account within a day. The processing time is considerably reduced with the use of technology. There are pre-approved loans for select customers based on eligibility who can get them within half an hour.
Competitive Interest Rate :
Though a personal loan carries a higher interest due to the risk factor, there are lenders who offer competitive interest rates on personal loans. The interest rate on a personal loan generally starts from 10.75% and it can go up to 37%. The individuals with a good credit profile can secure the best terms on a personal loan.
Processing Fees :
All the lenders charge a certain percentage of loan amount as processing fee. It generally ranges between 2% to 5%. Some lenders do provider waiver on processing fee to attract the customers. The processing fee will be deducted from the approved loan amount.
If you have enough money and wish to pre-close the personal loan before the stipulated tenure, you can do so by paying the outstanding principal to the lender. Each lender charges a certain fee as prepayment charges which generally ranges between 1% to 5%. Some lenders do allow their customers for part-prepayment, wherein they can partially pre-close the loan. However, the prepayment can be made only after completing a specific repayment period.
The maximum tenure on a personal loan is up to 5 years. However, there are very few lenders who might provide you the personal loan for up to 7 years based on your eligibility.
Loan Amount :
All eligible candidates can get maximum of Rs. 40 Lakhs as personal loan through banks. However, the maximum loan amount could vary from lender to lender. Higher loan amount is sanctioned to applicants who have lucrative income with stellar credit profile.
Though everyone can apply for a personal loan, not all of them will get the same loan amount at favourable interest rate. The loan amount and interest rate can differ for everyone. Following are the eligibility criteria that generally lenders look for in a personal loan applicant.
Good Credit Score :
Just after you have applied for the personal loan, the bank will pull out your credit score and credit report from the credit bureau to check your past credit activities. It’s the yardstick for the lenders to check your creditworthiness. Based on your credit score, the interest rate is fixed.
It is the deciding factor for the loan amount. The higher is your income, greater will be your loan amount eligibility. The lenders want to be assured of your repayment ability and hence, they ask you for the income proof.
Though this is not a major eligibility criterion, the lenders do check your age whether you will be able to complete the tenure.
Existing Debt :
Debt to income ratio plays an important role in loan eligibility. If you are already having a loan ongoing, your eligibility will depend on the rest of amount you can use for loan repayment. If there are no other loans, you have greater chances of getting a higher loan amount.
The lending system has been customised in the current scenario, suiting the varying needs of the individuals. Some might want a personal loan for smaller needs that they want to repay within a short tenure. Some people want just half of their monthly salary in advance and repay it in one or two instalments. Understanding the needs of the customers, online lenders have gained popularity in short-term personal loan space.
Short-term personal loans are boon individuals who are new to credit as it helps them get their credit score. One can get maximum of Rs. 5 Lakhs in a short-term loan based on credit eligibility. The tenure on the short-term loan ranges from 1 month to 12 months. It is the best solution to tide over immediate financial emergencies without having to pledge any collateral.
Applying for a personal loan is made easier than ever before. You can get personal loans within a day. Thanks to technology for making the process much easier. All you need to do is, just login to the official website of the lender you wish to apply and enter your personal and contact details. The lender, at first, might check your eligibility and process your loan for approval. Once, the loan is approved, you will be asked to acknowledge all the terms and conditions of the loan. Following the acknowledgement, the loan amount will be disbursed to your bank account. Applying online saves you the hassle of going to the bank and tedious application process.
You can also apply by calling up the customer support team of the lender who would assist you with the application process. An executive might come to your doorstep to collect the documents that will be processed for approval.
If you find visiting the nearby branch and applying is the best way, you can do so. You may need to get the help of the executives at the bank who can guide you through the loan application process. You need to carry the personal and income documents for applying for the loan through the bank.
Small businesses may require quick funds for an immediate need. While getting a business loan may be time-consuming, a personal loan can be handy during such times. A personal loan up to Rs. 40 Lakhs can be obtained without any collateral to run your business efficiently.
There are also government aided personal loans for business purposes offered through banks. The borrowers can enjoy low interest on these loans. Self-employed individuals who look forward to improving their business can make use of such schemes.
1. What is the lowest interest rate that I can avail on a personal loan?
The interest rate on a personal loan starts from 10.75% onwards. It’s possible to get low interest rate personal loans with a good income and credit score.
2. Are there personal loans with no processing fees?
Yes, some lenders do provide personal loans without processing fees. Some banks waive off the fees for senior citizens, pensioners and army personnel.
3. What is the maximum tenure available on a personal loan?
Most of the lenders have the maximum repayment period of 5 years. However, there are very few lenders who extend the personal loan for up to 7 years.
4. Can I cancel my personal loan after the approval?
Yes, you can cancel the personal loan after it has been approved. However, you may have to pay some amount as cancellation fee.
5. Should I have credit score to get a personal loan?
It depends on the loan amount and the lender. Most banks do check your credit score before approving the loan. However, there are personal loans just for score-building purpose.
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