Personal loan faqs

Personal loans are specially designed loans for which you don’t have to provide any collateral security. This is one of the reasons why the interest rate charged on these loans is higher compared to say on a secured loan. But some banks may insist on professionals providing a guarantor or co-applicant.

Yes, you can prepay your personal loan. But keep in mind that most banks charge a prepayment penalty of up to 5% on your outstanding principal amount. Hence, it is a good idea to compare the prepayment fees levied by different banks before you opt for a personal loan from a particular lender. Due to [...]

There is a specific rate of interest charged on a personal loan. Since this is often quite high every borrower must look out for opportunities to reduce the high cost burden present on this front. If there is some additional cash flow generated by a person or some other way where funds are available at a lower cost then it makes sense to prepay the loan after considering the cost involved.

There are different types of loans available in the market for individuals. Most of them can be taken for a specific purpose like purchasing a house or financing a vacation and so on. But there might be some requirements like the amount required for medical treatment or a family event that does not fit in with these specific uses. In such a situation, personal loan is a good way to borrow funds. But there can also be a situation where an individual does not meet conditions a borrower requires to fulfil to take a specific type of loan. In such cases the person can consider personal loan option.

1. Yes, you can apply for a personal loan jointly with your spouse as co-applicant.
2. You can include your spouse’s earnings in the application as you can get an even bigger loan amount as your spouse’s income will also be taken into consideration to decide your loan eligibility.

1. After your personal loan application is approved a bank provides you the facility of depositing the money straight in your account, provided you hold an account with the bank.
2. Or the loan is generally disbursed by either a cheque or draft.
3. A few government banks may require you to come in personally to their nearest branch and collect the loan amount.

According to present market conditions, you are looking at an interest rate charge of around 17% to 26% on your personal loan.

1. This can be reduced if you apply for a personal loan with the bank you have an account with or currently deal with on a regular basis. This makes you eligible for a relationship discount offered by many banks today.
2. Also, if you apply for a loan with a co-applicant, i.e., your spouse or parents who are earning, it will provide more security to the lenders, making them to consider reducing the rate of interest on the loan.
3. Ideally, the EMI payments of your personal loans should not be more than 35% to 40% of your net monthly income or salary. The lower the percentage the lower will be the interest rate charged by the lender.
4. For example, if your EMI payments are equal to 20% of your net monthly salary you are at a less risk of default than those whose EMI payments are at 40% of their net monthly salary. This would make you eligible for a lower interest rate on your personal loan in the first instance.

1. Personal loans are generally repaid by means of EMIs, i.e., equated monthly instalments.
2. Also, many lenders permit you to repay it by way of direct debit every month. The amount is automatically deducted from your bank account upon giving authorisation to the bank.
3.One more way is to issue post-dated cheques for the entire duration of the loan. These cheques have to be made in the name of the lender.

Most personal loans do not require collateral but if the loan amount is on the high side, say above Rs. 10 lakh, a bank may ask for collateral security. However, some lenders might ask for collateral even otherwise. Personal loans are especially designed for those who don’t want to go through the hassle of either providing a security or extensive legal documentation.

You need to fit into the eligibility criteria defined by a lender to get a personal loan. You should:

1. have a stable source of monthly income.
2. be either salaried or a self-employed professional.

The loan amount you are eligible for will depend upon your current earnings.