A Personal Loan is a form of unsecured loan availed by individuals on the basis of specific criteria, such as level of income, employment history, credit score, and scope for repayment. The loan is usually taken for the fulfillment of personal needs from a banking institution or a non-banking financial company (NBFC). Borrowers can use online tools available at neutral financial websites, such as the Personal Loan EMI Calculator, to assess the interest payout throughout the tenure before applying for a personal loan.
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.
Why choose a Personal Loan?
A temporary financial crisis can happen to anyone irrespective of his or her overall financial status. Personal loans are a great way to offset any such temporary financial crisis as it allows the users to avail a loan without any pre conditions on the usage of funds. Personal loans have a quick approval mechanism with loans getting cleared as early as within 24-48 hours of the loan application submission.
- Easy Availability: Easy availability is one of the biggest advantages of a personal loan. Almost all banks and on banking financial companies offer personal loans for it’s customers. Personal loans are not very expensive and are available at reasonable interest rates making them a lucrative option to overcome any immediate financial need.
- Minimal Documentation: Getting a personal loan does not warrant any long process of asset verification and require minimal documentation. Personal loans are quickly disbursed due to the fact that they seek minimal documentation for loan approval.
- Quick Loan Approval: Personal loans today come with a quick loan approval mechanism. Loans are approved almost instantly for online personal loan requests. Users requesting for a personal loan can expect a loan disbursal within one or two working days making the whole loan process swift and hassle free.
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Features and Benefits of Personal Loans
- Flexibility to Use Funds: Unlike other loan options, the funds raised through a personal loan can be used freely as per the needs of the individual borrower. Personal loans can be used to overcome any financial hardships, marriage or medical related expenses, house renovation or any other financial need of the borrower without any preconditions.
- No Security: Personal loans are approved based on the income details and financial history of the borrower and not over any fixed asset as security or collateral. Since personal loans do not require any collateral or security to be mortgaged with the bank for loan approval, they are easy to use for a vast majority of people.
- Flexible Quantum of Loan: Based on the borrower’s financial history and credit report, personal loans are available for requirements as low as Rs. 10,000 to as high as Rs. 15 Lakhs or 20 lakhs, depending on the bank or NBFC concerned.
- Flexible Tenure: The tenure of a personal loan is also quite broad depending on the bank and the loan amount. Personal loans are available for a tenure period ranging from 12 months to 60 months, making it an ideal financial instrument compared to other options like credit card loan or gold loan.
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Eligibility:
Various banks and NBFC’s offer personal loans to all applicants fulfilling their basic eligibility criteria. While different banks have different minimum eligibility criteria, the criteria common for most banks and NBFCs for individuals requesting a personal loan include:
| Criteria | Salaried | Self-Employed |
|---|---|---|
| Age | 21 years to 60 years | 22 years to 55 years |
| Net Monthly Income | Rs.15,000 | Rs.25,000 |
| CIBIL Score | Above 750 | Above 750 |
| Minimum Loan Amount | Rs.50,000 | Rs.50,000 |
| Maximum Loan Amount | Rs.25 lakh | Rs.30 lakh |
Best Personal Loans in India
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| Bank | Best for | Interest Rate |
|---|---|---|
| Citibank | Low Interest Rate | 10.50% – 17.99% |
| HDFC Bank | Self Employed Professionals | 10.75% – 21.50% |
| Kotak Mahindra Bank | Quick Turnaround Time | 10.50% – 16.99% |
| TATA Capital | Flexible Interest Rates | 11.25% – 14.49% |
| Fullerton India | Instant Approvals | 11.99% – 25% |
| ICICI Bank | Instant Disbursement | 10.99% – 16.25% |
Documentation needed to apply
Different banks and NBFCs have different minimum documentation requirement for personal loans. The common documents required by most banks and NBFCs for individuals requesting a personal loan include :
| Requirements | Salaried Individuals | Self Employed |
|---|---|---|
| Proof of Identity | Passport, Voter’s ID, Driving License or PAN Card | Passport, Voter’s ID, Driving License or PAN Card |
| Proof of Residence | Passport or utility bills | Passport or utility bills |
| Proof of Income | Bank statement of salary account for the past two years | Audited financial statement of the past two years |
If you are an NRI looking to borrow a personal loan, these are the documents that you will need to submit to the lender:
- Copy of your Passport
- Visa Copy
- Your official Email ID or the Email ID of the HR
- Bank Statements
- Salary Certificate or salary slips
- NRO/NRE bank statements of the last 6 Months
- Proof of Identity, Residence, Income, and Assets
- Recent passport-size Photographs of yourself and the guarantors
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Tips for Successful Loan Application
- Assess the need for your loan
- Do proper research to get the best rate
- Check your credit history
- Review the fine print on your loan document carefully
- Choose your loan tenure by assessing your repayment ability
- Choose an affordable interest rate
- Select your loan amount as per your convenience
- Check your EMIs properly
- Compare the processing fee
- Select fixed or variable interest rate according to your preference
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Different Types of Personal Loans in India
One can use your loan for any purpose as long as it is legal. However, there are certain lenders who provide different loan products on the basis of the purpose which is mentioned by the borrower in the loan application. On the basis of utilisation, these are the different types of personal loans which can be availed in India:
- Personal Loan for Wedding: As the name suggests, a loan which is offered particularly for the purpose of meeting the expenses of a wedding is a wedding loan.
- Personal Loan for Home Renovation: A home renovation loan is availed to meet the expenses of repairing or renovating your home.
- Personal Loan for Vacations: A holiday loan is especially designed for vacations. You can avail a loan for your vacation and pay the expenses on a later date through easy EMIs.
- Personal Loan for Pensioners: A loan which is specifically offered to pensioners is known as a pension loan.
- Personal Loan for Festivals: Certain lenders offer a personal loan exclusively for festivals. If you are looking for a loan to make arrangements for a festival, you can apply for a festival loan.
