Personal loans India have increasingly become popular over the past few years. With commercial banks offering low and competitive interest rates, they have become more accessible to the common man or woman to fulfill their aspirations or to meet their needs.
We have put together a detailed guide on personal loans in India which would help you understand them better.
What is a personal loan?
A personal loan is a kind of loan that is not tied to any asset or collateral and is provided to help individuals fulfill their personal needs. A personal loan is not monitored by the bank and can be used by an individual as they see fit. Since there is a higher risk for a bank or NBFC, personal loans generally attract higher interest rates.
Which factors affect the sanctioning of personal loans in India?
Some of the factors that are important to receive a personal loan in India are as follows:
- Income level
- Prior loans
- Credit history
- Financial obligations and repayment capacity
It is important to have a regular income source while applying for a personal loan.
What can I use my personal loan for?
Personal loans in India are not monitored by banks and can be used for any financial need that an individual sees fit. You could use it to buy the latest smartphone, for your marriage or even for a health emergency.
What are the personal loan rates in India?
Typically, the interest rate varies from 10.8% to 12% but often there is room for negotiation. You should talk to your loan provider to get the best interest rate for yourself.
How long is the loan sanctioned for?
Personal loans are sanctioned for a minimum of one year and a maximum of five years depending on the principal amount. Once the loan is sanctioned, the bank takes about a week to transfer it to your account.
How much can one borrow?
Individuals can borrow a minimum of Rs. 30,000 and the maximum amount typically is linked to their income level and capacity to repay. A higher credit score can also play an important role in helping you secure higher personal loans in India. Financial obligations and liabilities also play an important role in determining the maximum amount of loan you can apply for.
Can one opt for a co-applicant?
Yes, personal loans can be taken along with a co-applicant like your spouse of parents. If you opt for a co-applicant then their income level, credit history and so on also become a factor for the banks to determine the amount of loan you are jointly eligible for.
From which bank/financial institution should one borrow?
It is good to compare the offers of various banks before you settle on one. Some key factors to consider when deciding on a loan provider include interest rates, loan tenure, processing fees, etc.
How should I choose a loan provider?
There are several factors that you should consider while choosing a loan provider:
ii) No. of EMIs
iii) Repayment period
iv) Processing fees which is non-refundable and typically is 1 to 2% of the principal.
v) Prepayment options as certain loan providers have conditions associated with pre-payment. Banks may also charge a foreclosure charge of 1% to 2% of the principal.
Important documents required for a personal loan application?
You should have the following documents ready when you are applying for personal loans in India:
- Income proof with salary slips and recent ITR documents
- Address proof
- Identity proof which could be your passport, Aadhar card, driving license or voter id card
- PAN card
- Details of any prior loans
- Credit score
Quick tips to keep in mind before applying for personal loans in India
- Always calculate all your financial obligations in the foreseeable future before applying for a personal loan
- Avail personal loans for important issues only and don’t go overboard with the loan amount
- Read the loan agreement carefully to find out any hidden charges
- Carefully understand the process of deferment of a loan payment and understand the penalties associated with it
- Make plans to repay your loan in a timely manner as defaulting may have long-term consequences on your credit score.
That’s all from me. Do let me know if you have any questions on personal loans in India. Always remember to read the fine print carefully before going for your loan.