A complete guide for Personal Loans in India

A personal loan is the most famous loan despite its high-interest rate because of its collateral-free, minimal documents, and faster processing features. You can apply and get personal loans for higher education, contingency requirements, home renovation, and other personal needs.

You can meet fund shortfall with capital support from banks and NBFCs through a personal loan.

Let’s go through all the important aspects of a personal loan and its related information for your reference in the blog.

What is a Personal Loan?

Personal Loans are unsecured fund support given by Banks and NBFCs to individuals for meeting the fund crunch situations. Lenders decide personal loans based on credit score, employment history, income sources, repayment ability, etc.

Purpose of Personal Loans

The highlight of a personal loan is lender does not monitor the use of the loan amount. You will get capital based on eligibility criteria, that you can utilise for any requirement. 

Borrowers can buy electronic gadgets, home appliances, pay for medical expenses and education. You can also spend the loan amount for home renovation, down payment, car maintenance, etc. 

Eligibility Criteria

Banks and NBFCs broadly maintain similar personal loan criteria including Age, Work Experience, Permanent Residence, Sources of income, and ability to repay as agreed in the loan agreement.

Some of the lenders make specific changes in eligibility criteria. Consult your bank or relationship manager for a list of conditions for personal loan approval.

Loan Tenure

Personal loans are available with a loan tenure of one year to five years. There is also some variation case to case basis, depending upon the lender.

Loan Amount Limit and Disbursal Timeline

The loan amount depends upon salary, sources of income, and existing loans, etc. Once approved, the loan amount gets credited into your account within seven working days. Other modes of loan disbursal are account payee cheques or drafts of an equal amount.

Generally, banks and NBFCs fix the minimum loan amount level at 30,000 and maximum at 40 to 50 percent of the monthly income. It varies according to salaried and businesspersons.

Consideration for a maximum loan amount

• Current sources of income: salary for employees, incomes from business for businesspersons. Income from properties in terms of rent can be considered in both options.

• Higher the credit score more will be the eligible loan amount. If you have maintained a near 900 credit score, there are chances of getting the maximum loan amount

• Low to nil liabilities, a stable source of income makes you a safe borrower, and lenders sanction a bigger sum of money for risk-free accounts. Liabilities include current loans, credit card bills, etc.

Interest Rates

Banks and NBFCs keep the interest rate comparatively higher than home loans because of their unsecured and collateral-free nature. In order to boost the financial sector and with RBI support, current personal loans interest rates are very affordable, starting from as low as 10.40 percent.

Interest rates also depend upon your profile including credit score, income, liabilities, etc.

Types of Interest Rates

Fixed-Rate of Interest: Applicable on the total loan amount throughout the tenure

Floating/Reducing Interest Rate: Applicable on the outstanding principal loan amount, subject to EMI payments every month. 

Festive Offers on Personal Loans

Festive seasons witness several records every year and play a crucial role in making businesses profitable. This time of the year has become all the more important because we are recovering from the Covid pandemic and the economy needs a solid push in terms of sales in every sector including financial products such as home loans, personal loans etc.

The government and RBI have provided several stimulus packages and boosters to encourage lenders to provide lucrative loan offers to end-users, to revive the financial industry. Banks and NBFCs are offering limited-time festive offers on their personal loans. 

SBI has launched Festive Loans, Yes Bank has slashed interest rates, ICICI Bank, Bank of Baroda, HDFC Bank reduced home loan interest rates, and many more lenders are making an effort to take a slice of the season and lure maximum customers in their kitty.

Current Personal Loan Interest Rates, Processing Fees, and EMI per Lakh of top lenders of India

(Source: Apna Paisa)

Crucial Terms and Information

Co-borrower Option

A personal loan applicant can bring in their partner or parents as co-borrower. The benefits of co-applicant: you can be eligible for the higher loan amount, processing could be faster, and EMI can be shared, hence less monthly financial stress.

Prepayment Personal Loan

Prepayment terms vary from lender to lender. Some of them allow part payment, some of them allow after a certain number of EMIs paid, etc. There are prepayment charges applicable on the outstanding principal loan amount.

Documents for Personal Loan Application

• Permanent Address Proof Documents

• Identity Proof Documents

• Income/Salary Proof (Salary Slips/ITR certificates)

• Educational Proof (Degree Certificates)

*Documents vary from lender to lender. Consult your relationship manager to know the exact details of the required documents.

Personal Loan Approval Procedure

• The final decision about documents verification and loan approval rest with the sole discretion of the loan sanctioning officer or the person placed by the bank or the NBFC

• The approval process can take anywhere between two days to two weeks

• After all approvals and documents submission, your loan is disbursed within seven working days through cheque/draft/account transfer

Impact of defaults and delays on Repayment

• The first lender will contact you and try to settle the due amount.

• They also use recovery agents to get the loan money.

• Banks and NBFC also offer lumpsum payments for the settlement of the due amount and close the loan account.

• If still, they could not get the loan amount, the loan account will be shown as default in the credit report, affecting CIBIL score adversely

Concluding Thoughts

Personal loans are a popular way to fund financial requirements. Refer to the passage, follow the tips and information to get the best personal loan during the festive season the get the best deal.