Personal loan is a loan that does not require any collateral or security and can be obtained with minimal documentation. Just like most loans, however, it must be repaid in monthly installments.
For example, a Car Loan or a Home Loan must be used for that specific purpose but the Personal Loan can be used for any purpose like vocational courses, home renovation, medical emergency, or to travel , just about anything. The choice is up to you.
You don’t need to mortgage your house, just so you can take that much-needed vacation trip!
There is minimum documentation required in order to obtain a Personal Loan. This also cuts down on the processing time for such a loan.
Some of the reasons for applying for Personal loan are:
- Holiday/ Vacation financing
- To Finance Festive Celebrations or Needs
- Finance Weddings
- Build/ Renovate house
- Medical Emergency
- Refinancing The Home Loan
- To Fix A Car
- Financing Education
- Business Expansion
- Debt Consolidation and so on
Hence, personal loans are most preferred options for financing your immediate needs. Loan approval is quick and easy. Additionally, documentation required are minimum.
You can also claim tax benefits on the interest payments if you use the loan amount for buying, constructing or renovating a home, or for higher education purposes.
Personal loan eligibility:
Loan eligibility is dependent on several factors such as your credit score, monthly income, other ongoing EMIs, etc. These terms vary from one lender to another.
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Age Limit
If you are a salaried employee, then the age limit is 21-58 years. Age limit for a self-employed businessman or woman and professional is 25-65 years.
Monthly Income
Your net monthly salary is crucial to sanctioning your loan. Some lending institutions have a minimum monthly income criterion. While at some banks the eligibility criteria is Rs 25, 000 per month.
Nature of Employment
Some of the basic employment types are salaried employees, professionals, Self-employed person or professionals.
Employment Term
If you have been job-hopping in the recent past, an approval could be difficult.
For instance, many lending institutions sanction loans to employees with at least two years work experience, and at least one year from your current employer.
Similarly, self-employed professionals must have a minimum of three years of experience. Some consider your overall work experience.
Credit Score
This is a score assigned to you by a credit information company (for example companies such as CIBIL, Equifax, High Mark). It gives a prospective lending institution, a perspective about your history as a borrower.
A high credit score also gives you the bargaining power to negotiate better loan terms for yourself. Some banks have a minimum CIBIL Score requirement of 700, while some have 750. A score in the range of 700-900 is desirable.
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Read also: How to get your credit report for free
How can you choose a perfect Personal Loan?
There are several factors that go into choosing which Personal Loan works for you. Time, urgency and capacity to repay are important factors you need to consider. At the same time, the main factors are Interest rate and loan charges.
Personal loan Interest rates:
Personal Loan Interest Rates are one of the highest interest charged amongst the other categories of loan.
Currently, personal loans are being issued at the rate of around 10% - 15% per annum.
The rate of interest varies from bank to bank. It also depends applicant's income level, past credit history, existing EMIs and loans, loan tenure, credit score and so on.
Along with the interest cost on personal loan, there will be some processing fee and other charges which you need to keep in mind.
Lower your EMI and choose your personal loan from desired FI:
EMI or equated monthly installments are an important part of a loan. It is the intervallic installment amount that you pay to clear your loan.
It is important to calculate your EMI and find a way to keep it as low as possible. There are three factors that determine your EMI:
- The loan amount
- The interest rate
- The tenure
You can change the loan amount and tenure as you please until you finally find the right EMI. If you have a fixed loan amount in mind, then adjust the tenure until you find the right EMI.
Formula for calculating Personal Loan EMI
The mathematical formula for calculating EMI is as follows:
P = Principal loan amount;
R = Rate of interest calculated on monthly basis i.e. (R= Annual rate of interest/12/100).
For instance, if R = 15% per annum, then R= 15/12/100 = 0.0125; and
N = the number of monthly instalments.
For example, if you borrow Rs 5,00,000 from a bank at 15% rate of interest for a tenure of 10 years then,
EMI = 500000*0.0125*(1+0.0125)36
(1+0.0067)36 – 1
(1+0.0067)36 – 1
EMI = Rs 17,333
How do I apply for a Personal Loan?
You can apply personal loan by visiting any financial institution which is offering personal loan with best rates, at their branches or you can apply loan online by visiting their website.
These are the major FIs offers personal loans with best rates.
Loan Providers
|
HDFC Bank
|
Andhra
Bank
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What other options do I have apart from Personal Loans?
If you are not sure about a Personal Loan, some Banks offer several other options that you can use to generate funds for your needs. The Banks offer loans against the following:
Credit Card – Depending upon your account and requirements, you can get the loan credited to your Bank account. For instance, Insta Loan allows for immediate loan disbursal into the your Bank account, while the Insta top up Loan allows the same for an amount that may be beyond your credit limit.
Securities – You can pledge your securities with the Bank and obtain a loan. The processing is quick and comes without any prepayment or foreclosure charges. You can choose which security you want to pledge: Mutual Funds or Shares.
Digital Loans against Mutual Funds – some Banks are offering Digital Loans Against Mutual Funds.
Read also: Know the importance of credit report
Please comment below with your suggestions / queries.
Read also: Know the importance of credit report
Please comment below with your suggestions / queries.
Hello, welcome to my blog, Smart Investor. I'm Satyanarayana, a banker & blogger, Investor from Visakha -patnam, India. You can read more about SML here.
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