8 facts about personal loans in India

A personal loan is an unsecured loan given by banks or other financial institutions based on criteria like salary, credit score, employment history, repayment capacity. A person can get a personal loan without pledging any collateral to the bank thats why a personal loan is called an unsecured loan.

Unlike other loans, personal loans require minimal documents and the processing time is quick. Usually, personal loans tenure ranges from 1 to 5 years, the borrower can choose the loan tenure according to his repayment capacity. Compared to other loans personal loans have a high-interest rate, the interest rate range from 10 to 25 percent. The required documents are minimal that including your ID proof, income certificate, IT returns.

Facts about personal loans,

1. Who is Eligible for personal loans?

Both salaried and nonsalaried personnel are eligible for personal loans. One must be above 21 years old or below 60 years to get a personal loan. The applicant should have a minimum income of 25,000 per month.

2. How long do processing and disbursement take?

One of the advantages of a personal loan is it's quick to get. The processing time is less compared to other loans. The documents needed are fewer. Documents such as proof of income, proof of ID, proof of residence. Some banks also pre-approve their customer for a personal loan. After the document verification is complete, the loan amount is disbursed within 48 hours, some customers get an instant loan.

3. Why personal loan is Unsecured?

A personal loan is also known as an unsecured loan because the borrower doesn’t need to pledge any collateral to the bank to get a loan. The bank takes a huge risk by giving a personal loan. Personal loans, unlike other forms of loans that are taken out for a specified purpose such as purchasing a car or a home, can be used to finance any type of financial aim. Personal loans might be used to repair a home, pay for a wedding or an international vacation, or settle the debt.

4. What is the maximum amount that can be borrowed?

The loan amount that one is eligible for is totally dependent on their monthly income. The bank considers their monthly income and monthly expense in order to check their eligible loan amount. Every bank gives a minimum amount of 50,000 it may be less for Non-financial banking companies (NBFCs).

5. What is the rate of interest?

The interest rate is on the higher side compared to other loans. A personal loan is an unsecured loan. The interest rate ranges from 10 to 25 percent. Banks consider a number of factors while determining your interest rate. Your credit score has a significant impact on your interest rate. The higher the credit score the lower the interest rate will be. The loan tenure also plays a role, the longer the loan tenure the higher the interest rate. Borrowers with a bad credit score and a poor payback history are more likely to be charged higher interest rates. You can calculate your monthly EMI on a personal loan EMI calculator.

6. What is the maximum loan tenure?

The repayment tenure of a personal loan range from 1 to 5 years. The borrower can choose the loan tenure. It's recommended to choose shorter loan tenure because the interest rate will be less. The amount paid in interest is higher when you choose longer loan tenure.

7. Does credit score affect your loan approval?

A credit score plays an important role in approving your loan. Most banks recommend a credit score above 750. In addition, the CIBIL report includes comments concerning missed EMI payments, which are taken into account when evaluating a loan application. When banks and financial organizations determine the maximum loan amount and the rate of interest charged, they consider the credit score and payback history.

8. How are you going to pay back the money you borrowed? The borrower can pay back the loan on basis of monthly installments. The total amount due includes the interest imposed on the loan. The borrower can also pre-pay the amount before the loan tenure end, before doing prepayment make sure there is no prepayment penalty because some banks charge a penalty for the prepayment. Before selecting to repay the entire loan amount, most banks require consumers to complete a total of 12 months of EMI payments.

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