what is personal loan
Simply put, it is an unsecured loan taken by individuals from a bank or a non-banking financial company (NBFC) to meet their personal needs. It is provided on the basis of key criteria such as income level, credit and employment history, repayment capacity, etc.
Unlike a home or a car loan, a personal loan is not secured against any asset. As it is unsecured and the borrower does not put up collateral like gold or property to avail it, the lender, in case of a default, cannot auction
anything you own. The interest rates on personal loans are higher than those on home, car or gold loans because of the greater perceived risk when sanctioning them.
Although it varies from bank to bank, the general criteria include your age, occupation, income, capacity to repay the loan and place of residence.
To avail of a personal loan, you must have a regular income source, whether you are a salaried individual, self-employed business person or a professional. An individual’s eligibility is also affected by the company he is employed with, his credit history, etc.
Maximum loan duration
It can be 1 to 5 years or 12 to 60 months. Shorter or longer tenures may be allowed on a case by case basis, but it is rare.
Disbursal of loan amount
Typically, it gets disbursed within 7 working days of the loan application to the lender. Once approved, you may either receive an account payee cheque/draft equal to the loan amount or get the money deposited automatically into your savings account electronically.
How much can one borrow?
It usually depends on your income and varies based on whether you are salaried or self-employed. Usually, the banks restrict the loan amount such that your EMI isn’t more than 40-50% of your monthly income.
Any existing loans that are being serviced by the applicant are also considered when calculating the personal loan amount. For the self employed, the loan value is determined on the basis of the profit earned as per the most recent acknowled ..
Is there a minimum loan amount?
Yes, though the exact amount varies from one institution to another. Most lenders have set their minimum personal loan principal amount at Rs 30,000.
Key documents required when applying for a loan
Though the documentation requirements vary from one financial institution to another, some key documents you will have to provide with your personal loan application include:
*Income proof (salary slip for salaried/recent acknowledged ITR for self-employed)
*Address proof documents
*Identity proof documents
*Certified copies of degree/licence (in case of self-employed individuals)