Who Is Eligible To Get A Personal Loan?
The loan eligibility criteria details may differ from bank to bank based on the perception of the risks which is associated while giving out the personal loans. However, almost all banks categorize the potential borrowers into below categories:
- Salaried individuals
- Self-employed individuals
- Self-employed professionals
Some of the other factors which are also considered are, age, residence, work experience, repayment capacity, previous obligations and nature of work.
What Kinds Of Interest Rates Are Offered By Lenders On Personal Loans?Personal loans are given by lender in:
- Fixed rate
- Floating rate
Quick Tips To Choose The Right Personal Loan Deal
- Do proper comparison of Emi, processing fee, tenure, documents before selecting the lender.
- Never pay fee to any person in order to get your loan sanctioned. Processing fee will be deducted by the lender from loan amount, therefore, never pay any kind of fee to the agent to get your loan sanctioned.
- Give your documents to the agent or bank employee only after ensuring that he has the authority in this regard.
Different Parameters To Compare Personal Loans In India
- Comparison of interest rates: It is possible to compare personal loan primarily on the basis of interest rates, which may vary across different banks depending on the profile, which would be further linked to the occupation, income structure, credit history, etc. The personal loan interest rate varies from 12 per cent to 25 per cent and you must choose that loan which is available at minimum interest rate.
- Other charges associated with loan: It is recommended to check other charges also like processing fee, pre-payment penalties and documentation fee because it increases the total loan cost and it may vary widely across different banks.
- Evaluation of varied personal loan offers: It would be useful to do the proper calculation of the entire loan cost across different banks, which constitutes the interest rate & other charges. The whole process will help you in getting the best personal loan deal.
- Equated monthly installments (EMIs): It constitutes the principal loan amount and the interest rate on the principal, which will be equally divided between each month in the personal loan tenure.
- Tenure- Loan tenure is the time frame within which the borrower is required to repay the loan amount. It can range from 1 year to 5 years. If you are having a long tenure then you will end up by paying more interest & will have lower EMI, on the other hand, if it is shorter loan tenure then it will carry high EMIs & the interest amount will be less.
- Turnaround time- It plays an imperative role in evaluation of the personal loan application when you are in a dire need of funds. Turnaround time can be defined as the time which banks will take in processing the personal loan application. It is important to check this parameter, which may vary from lender to lender.
Advantages Of Personal Loans
- No collateral security is required: A personal loan is unsecured loan, which means, there is no need to give any collateral or security to the lending institution in order to get the loan. Though there are other eligibility criteria also which are required to be verified by the bank but the absence of any security makes it easy to get the loan for such type of people who do not have any collateral, like shares or jewelry.
- Minimal loan documentation: The whole process of personal loan application is quite simple as compared to any other loan procedure because there is no need to submit any security.
- Flexibility of personal loan use: You are not required to tell the lender about the end use of the loan amount. Lenders are only concerned about the fact that whether the borrower would be able to pay back the loan amount with interest amount before the end of tenure or not. You can use the loan amount for renovation of your house, paying medical expenditures, foreign trip, wedding expenses, buying consumer durables, or for any other purpose.
- Quick disbursement of personal loan: You can get the personal loan within the short duration as it is unsecured and takes less time in processing.
- Big personal loan amount: It is possible to get the personal loan varying from Rs 50,000 to Rs 20 lakh.
Points To Keep In Mind Before Searching For A Personal Loan In India
Choose the lender diligently
Unlike housing loans, the interest rates vary on a wider range for this product. It means, a person with good salary can get an interest rate of 16 per cent but others may be required to pay as much as 24 per cent. So, to crack the deal, it is necessary to choose your lender carefully.
Use the loan for short term
Since personal loans are approved without any security, therefore, they come along with a high interest rate. It is provided purely on the basis of the income flow and if the borrower will default then the lender has less chances of recovery. Hence, you should select the personal loan only when you require funds for a shorter tenure even if you can get a loan for longer tenure.
Avoid taking many loans
As you don't require hypothecation, therefore, it becomes easy for borrowers to get more than one loan. It cannot be done in case of home loan or car loan, as the same asset cannot be mortgaged with various lenders. However, you should not misuse this flexibility as it can put you into trouble because of the huge database network.
Use the personal loan as a last resort
One should use the personal loan only as a last option and it should be applied for shorter tenure because the long-term loan comes along with high interest charge, which in turn can negatively affect your saving and investment.
What Are The Documents Required To Get Personal Loans
Following set of documents are needed by lending institution to process the personal loan application of the borrower:
- Identity proof
- Last six months bank statements
- Residence proof
- Salary slip/certificate
- Guarantors & their set of documents
In case of self-employed, banks can ask you to submit additional documents, which may include, balance sheets, profit & loss account, partnership deed and varied other mandatory documents, etc.
Personal Loan Criteria Of Different Banks
Banks provide loan to borrowers on the basis of varied parameters, like salary, employment, continuity of business, etc., in order to make sure that the loan is repaid with the interest before the due date. Lenders have set their eligibility criterion on the basis of the work profile of the loan seeker, which can be divided into below sections-
Along with above factors, lenders also take into account other factors, which can include, age, family history, work experience, repayment capacity of borrower, etc.
Effect Of Cibil Score On Your Personal Loan Application
This a norm wherein all lending institutions before providing loan, will check the credit worthiness of the person by obtaining the credit report from the Credit Information Bureau of India (CIBIL), which can be called as Cibil Score. If there has been a default in repayment of loan or credit card dues then the lender can reject your loan application. The CIBIL score will range from 100 to 999, which means, if your credit score will be 100 then your loan application can be out rightly rejected. On the other hand, if your credit score is above 800 then your loan application will be processed fast and you will be given lower interest rates and exciting discounts. It is possible to improve your credit score by making a timely repayment of your loan EMIs and credit card dues.