A personal loan is a multipurpose loan that you can use for any financial need. Most of the times, people apply for this loan for an emergency expenses such as a home repair, vehicle repair, important travel, medical treatment, or planned events such as a holiday, big-ticket purchase, wedding, etc. There is basically no restriction on the end use of the funds. However, personal loans come with a few criteria that you must fulfill to get the funds. Being aware of these will help you know the loan schemes better, and what you can expect next.
Below-mentioned are 11 things you must know about a personal loan, before dropping the loan application.
- Loan Amount
Quantum of finance offered by financial institutions is the most basic think to check. The amount may vary from a bank to another. Usually, the borrowing amount is between Rs. 1 lakh and Rs. 1 crore. The lesser you borrow; lower will be the cost of the loan, and probably it help you repay it quickly as well. As the loan amount influences the total cost of the loan, make sure to borrow only an amount you need, and nothing excess.
- Interest Rate
The interest rate on a personal loan also varies from an institution to another, but the lowest rate starts at 10.99%. There are banks offering a lower rate starting from 8.40% as well for special purposes. Lower the rate, lower will be loan cost, and vice-versa. To qualify for the best interest rate, you must possess a good credit score and repayment capacity, and have specific number of years as work experience, along with meeting the important eligibility criteria.
- Repayment Tenure
You need to repay the loan in a certain time frame. This period is known as the repayment tenure. Personal loan tenure is between 12 months and 60 months. Lending institution provides a tenure which matches your repayment capacity and financial position. Shorter the tenure, lower will be the total interest payout and vice-versa.
However, the EMI amount will be higher on a shorter tenure, but that has the benefit of getting the loan closed sooner, and saving a lot on the cost of the loan. So, choose a tenure on which you can afford the equated monthly installment, be it on a longer or a shorter tenure depends on your financial situation.
- Equated Monthly Installment
EMI or equated monthly instant is one of the crucial numbers to check when applying for a personal loan. The EMI is influenced by the rate of interest, loan amount, and loan tenure. As discussed above, a lower rate and borrowed fund will lower the EMI, and vice-versa. You should calculate the personal loan EMI based on the above-mentioned three factors and choose a loan offer, which is the most affordable, and easy to repay.
- Documents Required to Apply for the Loan
Most of the financial institutions will require you to submit income proof, address proof, identity proof, age proof, recent bank statements, and few other documents to apply for a personal loan. You must always verify the documents needed by the bank or NBFC before dropping the loan application. If you are applying for the loan offline, you will have to attach a hard copy of the documents to the loan application form. If applying online, all you have to do is upload the soft copy of the required documents with the application form.
- Eligibility Criteria of Personal Loans
You need to check the eligibility criteria stated by financial institutions for the personal loan. This criteria is the most important to understand and fulfill in order to get approval on the loan application. The criteria may differ from a bank to another, but specifically relates to the age of the applicant, income required, credit score, and other factors.
Usually, banks offer personal loans to salaried individuals who are at least 23 years of age. But, there are a few offering the loan to self-employed professionals such as doctors, Chartered Accountants, consultants, doctors, etc. Minimum net monthly income for salaried individuals must be Rs. 25,000. Those residing in non-metro cities may have a lower income requirement.
- Option to Prepay the Loan
If you want to prepay the personal loan before the end of its tenure, then you can do so. However, a prepayment fee will be applicable on the outstanding loan amount. This fee differs from an institution to another, starting at 1%-2% of the remaining loan amount. There could be restrictions as to number of EMIs you have to pay mandatory before availing the option to prepay or foreclose the loan. Thus, compare the prepayment fees and terms, before you apply for a personal loan in India.
- Processing Fee
Like an interest rate, processing fee is a mandatory cost you have to bear as a borrower. This is the origination fee, specially charges for verification, documentation, legal, and other procedures involved in sanctioning the loan, and thereafter. The processing fee influences the total cost of the loan, thus, you must compare this fee across lenders, before choosing a loan offer, which is ideal. Processing fee of a personal loan can be as low as 0.5% to 3% of the entire loan amount.
- Credibility of the Bank or NBFC
Before choosing a personal loan offer, also check for the reputation and credibility of the bank or NBFC offering the loan. There are institutions known for the best turnaround time and disbursal process. Then there are those reckoned for their customer support and online service. So, you can read the reviews about financial institutions and their services before choosing to apply for a loan with any.
- Ease of Personal Loan Application
Most of the banks and NBFCs today offer an online application option for personal loan. But there are still a few institutions that you have to personally visit to enquire for the loan, and avail the funds. So, you need to check for the ease of personal loan application process as in your busy schedule, it may not be always possible to visit institutions to apply for the loan. Also, note the average time taken by the lenders in approving the loan application, and apply accordingly.
- Time Taken for Disbursal
Usually, it takes 48 hours to disburse a personal loan amount to a borrower’s account. However, the duration may extend depending on how correctly a person has filled the loan application form, and presence of all the required documents. In some cases, banks may reject a loan application with insufficient documents and details. So, fill all the details correctly in the application form in order to avail the funds in the shortest possible time. Compare the disbursal duration promised across institutions and choose an offer as per suitability.
To apply for a personal loan, you must be well aware of the above-mentioned terms and conditions. This will allow you to take an informed decision on the right loan offer, and cut down the risks of having the loan application rejected by banks and NBFCs.