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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.
| 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% |
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 |
| 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 |
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.
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.
