Personal Loan – Interest Rates, Eligibility, Features, and Factors Affecting Eligibility
Updated on: Jun 7th, 2024
|
3 min read
A personal loan is a loan availed by individuals to meet their financial commitments or requirements. This type of loan comes in handy if you have unexpected expenses to take care of.
Individuals use the funds received through a personal loan to make big purchases, consolidate high-interest debts, meet wedding expenses and educational expenses, go on a trip, and many other reasons.
The loan is usually taken from a bank or a non-banking financial company (NBFC) at a pre-agreed rate and terms and conditions.
Top Personal Loan Interest Rates 2021
| Lender | Interest Rates (p.a.) |
| SBI | 9.60% |
| Kotak Bank | 10.25% |
| Axis Bank | 10.40% |
| IDFC First Bank | 10.49% |
| IndusInd Bank | 10.49% |
| HDFC Bank | 10.50% |
| ICICI Bank | 10.75% |
| Fullerton India | 11.99% |
| IDBI Bank | 12.00% |
| Bajaj Finserv | 12.99% |
| IIFL | 12.99% |
| RBL Bank | 13.99% |
Features and Benefits of Personal Loans
- Personal loans are unsecured loans that do not require the applicant to pledge any asset as collateral.
- Personal loans are provided based on the borrower’s creditworthiness analysed based on their credit report/history.
- In the case of a home loan or car loan, you can use the funds only to purchase a house or a car. Funds from a personal loan can be used for any purpose.
- Loan tenure can range from 12 months up to 60 months based on your convenience.
- Minimal documentation, such as proof of identity, address, and income, is enough to apply for a personal loan.
- There are many instant loan disbursement schemes where the lender hands the cash to you in a matter of a few hours.
- The loan amount depends on many factors, such as repayment capacity, income source, and more.
- The loan amount can range from Rs.10,000 up to a few lakhs.
Factors Affecting Personal Loan Eligibility
Credit Score
A credit score is a 3-digit number that represents your creditworthiness to the lender. It describes how you have managed your finances and bills in the past. The lower the score, the lesser are your chances to get a good deal on your loan application.
Many lenders even deny financing to individuals with lower scores as they think that the borrower may default on their loan repayments. To improve the chances of getting the loan, it is recommended that you check your credit score beforehand, and if it is low, you can work on building it before you apply for the loan.
Monthly Income
Since collaterals do not back up personal loans, your monthly income and repayment capacity become important. The income requirements vary based on the location you live in, i.e. it may vary across metro cities, tier-1 cities, tier-2 cities, towns, and villages.
Work Experience
Applicants who have recently got employed or started their business are not considered financially secure by the lenders. Applicants with adequate work experience are more likely to get their application approved as the lenders think that they have relatively secure financial plans and savings.
A minimum of 2-3 years experience is favourable; the applicant should be employed with the current employer for a minimum of 1 year.
Liabilities
Your current liabilities can make or break the deal when it comes to approving your loan application.
If you are already paying huge credit card bills, home loan EMIs, car loan EMIs, and other debts and if you have applied for a personal loan, the lender will weigh your debt-to-income ratio and may decide not to approve the application.
This is because most of your monthly income may go towards loan repayments, which may not leave you with enough money for your domestic expenses.
Age
The age of the applicant plays an important role in the approval of the loan. Lenders check for their age to ensure that the borrower has enough working time to repay the loan.
Therefore, salaried applicants must be in the range of 23-58 years, and self-employed non-professionals must be in the range of 28-65 years at the time of applying for the loan for easy acceptance.
When to Take a Personal Loan?
Pay Off a Higher-Rate Debt
In the case of failure to repay a credit card bill or a loan having a high interest rate, individuals seek the help of a personal loan so they can repay the high-rate debt instantly and repay the personal loan through monthly instalments.
Medical Emergency
When there is a medical emergency and there are not enough funds to take care of the medical expenses, individuals go for a personal loan. Since a few lenders offer personal loans instantly, it comes in handy to handle emergencies.
Education Expenses
When you or your loved ones want to pursue great heights through higher education, you may prefer a personal loan to take care of the related expenses.
Downpayment for car/house
A home loan or a car loan will usually include a margin of a minimum of 10%-15%. That means you have to put a minimum of 10%-15% of the property’s cost from your pocket. If you have not saved up enough to handle this, you may go for a personal loan to handle this cost.
Finance your Business
Some people utilise personal loans to finance their business. Say there is a sudden requirement of cash to fill in inventory or deliver the bulk order to the client on time. Applying for a business loan in this situation may take a few days to evaluate your documentation. In this case, a personal loan can be useful.
Wedding Expenses
Organising a wedding ceremony is a costly affair, especially in India. When the requirements are overshooting your budget, you may go for a personal loan to manage the expenses and repay the loan amount later.
Vacation
If you are planning for that international vacation but cannot reach your goal due to the shortage of funds, you could take a personal loan for the funds that are short and pursue your dream vacation. It is always possible to repay the loan once you are back.
Eligibility Criteria
The eligibility criteria for availing of a personal loan varies from bank to bank. However, here are general criteria you should know.
| Particulars | Salaried Applicants | Self-Employed Applicants |
| Age | 23-58 years | 28-65 years |
| Income | Rs.25,000 per month | Rs.40 lakh per annum (turnover) |
| Minimum Experience | 2 years; employed with the current employer for at least a year | 2-3 years of business experience with the current business |
Documents Required
| Salaried | Self-employed |
| Application form with photograph Identity and residence proof Last six months’ bank statements Processing fee cheque Latest salary slip Form 16 | Application form with photograph Identity and residence proof Last six months’ bank statements Processing fee chequeProof of business Business profile and the last three years’ Income Tax Returns (self and business) Last three years’ profit and loss statement and balance sheet |
EMI Calculator
A personal loan EMI calculator is a smart tool that calculates your monthly EMI amount payable to the lender. It’s basically a tool where you enter the values, such as Principal loan amount (P), time duration to repay the loan (N), and rate of interest (R) to find out your EMI and figure out your budget in advance.
What You Should Know
- Interest Rates: Since personal loans are unsecured, interest rates could be on the higher side. It would help if you chose a fixed or a variable interest rate depending on the bank or NBFC.
- Penalty Charges: Banks and NBFCs charge a high penalty on your loan if you don’t pay your dues/EMIs on time.
- Analyse the Necessity: Personal loans or any loan are meant for genuine and urgent needs. So, if your financial situation can be handled without taking the loan, you should avoid taking it.
How to Apply?
Step 1: Check your eligibility to get a personal loan.
Step 2: Do your research on personal loan offers and shortlist a few lenders you think are favourable for you.
Step 3: Visit their nearest branch office or their website.
Step 4: Fill in the application form and attach the necessary documents once you enquire about the offer in detail.
Step 5: The bank will process your application and inform you about their decision within the stipulated period.
Thanks to digitisation, applying for a loan is no longer restricted to visiting the bank several times. Instead, you can do it online. Once you know the whole loan process and agree to the terms and conditions of the personal loan, the bank collects the required documents.
It initiates the loan process, including checking your CIBIL score, the nature of the financial urgency, etc. Based on the evaluation of all the papers, the bank will intimate their decision on your loan application.
Related Articles
Quick Summary
Personal loans are convenient for various needs like debt consolidation, weddings, education expenses. Eligibility is based on credit score, income level, work experience, liabilities, and age. Loan amounts can vary; funding is quick with minimal documentation. Ways to use personal loans include paying off high-interest debts, medical emergencies, education expenses, down payments, business financing, and more. Understanding eligibility criteria, documentation, and applying online are crucial steps for obtaining a personal loan.
Was this summary helpful?
Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.
Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.
CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.
Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.
Cleartax is a product by Defmacro Software Pvt. Ltd.
Company PolicyTerms of use
ISO 27001
Data Center
SSL Certified Site
128-bit encryption