What do i need for a Personal Loan?

How is an individual loan?

In other words, it is an unsecured loan from individuals from an NBFC to meet their personal demands. It is based on key criteria such as income level, credit and work records, repayment capacity, etc.

Contrary to a house or a car loan, a personal loan against any asset is not covered. Since the creditor is unsecured and does not place collateral like gold or land to make use of it, the lender can not sell something you own in the event of default. The interest rates on personal loans are higher than on house, car or gold loans due to the greater risk expected when they are approved.

However, as with any other loan, personal loan defaults are not good as would be reflected in your credit report and cause problems when applying for credit cards or other credits in future.

What can it be used for?

It can be used for any personal financial needs and is not monitored by the bank. It can be used to renovate your house, husbandry, family holidays, educate your child, purchase latest electronic equipment or home equipment, meet unexpected medical costs or other emergencies.

Personal loans are also helpful when it comes to corporate investment, your car set-up , new house payment, etc.

Criteria for eligibility

Although the criteria vary from bank to bank, their age, occupation , income, capacity to pay the loan and place of residence are generally applicable.

To make use of your personal credit, you must have a regular source of income, whether you are an employee, a self-employed person or a professional. The eligibility of a person is also affected by the company, its credit history, etc.

Maximum length of loan

It can be between 1 and 5 years or between 12 and 60 months. On a case-by – case basis, shorter or longer tenures may be permitted, but rare.

Loan disbursement

It is usually disbursed to the applicant within 7 working days of the loan submission. You can either receive a cheque / draft payee for an account equal to the loan amount once approved, or receive the money automatically deposited into your savings account electronically.

How much can you buy?

It depends usually on your income and varies according to whether you are employed or self-employed. The banks generally limit the loan amount to not more than 40-50 percent of your monthly income.

Any existing loans served by the applicant shall also be considered when calculating the amount of the personal loan. For self-employed individuals, the loan value is measured based on the income received in the most recent accepted profit / loss statement, taking into account any additional liabilities (e.g., current company loans) he might have.

Is there a minimum amount of loan available?

Yes, but the exact amount varies from institution to institution. Most borrowers have set their personal minimum loan principal to Rs 30,000.

What bank / financial institution will you borrow from?

Before you make up one, it is good to compare the offers of different banks. In deciding on a credit provider, a number of key factors include interest rates, loan tenure, handling fees, etc.

How do banks determine the permissible amount of credit?

Although the conditions for credit sanction may vary from bank to bank, some important considerations are your credit score, current income rates, as well as liabilities. A high loan score (closer to 900) means that you have properly serviced your past loans and/or credit card dues, so the lenders feel you are a safe borrower and that they are penalized for higher loans.

Your current level of revenue and your liabilities (excluding card duties, unpaid loans, existing EMIs, etc.) directly affect your repayment capacity. Therefore you will be sanctioned a lower amount of personal loans than those with higher incomes or less financial liabilities if you are in a lower income or have large amounts of unpaid credit card bills or outstanding EMI loans.

Will I always choose a loan provider to use the lowest EMI possible?

Low EMI deals will usually result from a long refund period, low interest rates or a combination of the two. Often, if you choose low EMIs, you will pay more interest to your loaner. Using online resources like the EMI personal loan calculator to assess your loan interest rate and reimbursement ability before calling.

Council

Personal loans have a higher interest rate as unsecured loans than those for secured ‘home and car’ loans. Many leading banks and NBFCs currently offer loans at interest rates of 11.49 percent. The borrower rate depends on the main factors including loan ranking, income level, loan amount and term, previous relationships with the lender (savings account, loans or credit cards), etc.

Additional fee payable

Yes. Yes. Yes. In addition to the interest on the principal sum, the application for a personal loan is subject to a non-refundable fee. The lender charges fees, usually 1-2% of the loan principal, for all documents to be processed within the process of application. If you have a long-term association with him, the lender may waive this charge.

May I apply together with my wife?

Yeah, you can apply yourself or, together with a (jointly) co-applicant, who must be a family member, like your spouse or parents, for an individual loan. With a co-borrower you can process your application in a higher income bracket and apply for a larger loan. Nonetheless, bear in mind that whether you or your co-applicant have a bad credit background, your request for a loan will be less likely to succeed.

Main documentation required to apply for a loan

While the documentation requirements vary from financial institution to financial institution, certain key documents that you must apply for personal loans include:

1.  Income proof (salary slip for employees / recent ITRs for self-employed persons)
2.  Proof of contact documents
3.  Documents of proof of identity
4.  Certified degree / license copies (for self-employed persons)

Loan redemption

This can be repaid in EMI format via Post-Dated Checks (PDCs), drawn for the bank, or through the release of an Electronic Clearing Services system (ECS) mandate for payment.

Prepaid / pre-payment charges

If you plan to pay your loan before it expires, an extra fee called a prepayment / pre-payment / penalty will be paid to you. This penalty usually varies from 1 to 2 percent of the remaining principal. However, some banks charge a higher amount to forfeit a loan.

Process of loan approval

The approval shall be the sole discretion of the creditor whose decision shall be based on the conditions laid down by the bank / financial institution. The entire process may take 48 hours to approximately two weeks. If all the required documents have been submitted and the verification process completed, the loan is disbursed by the bank within seven working days if it is approved. Please keep all necessary documents in conjunction with PDC and/or signed ECS form to prevent loan processing and disbursement delays.

Default on expected EMIs

If you miss your scheduled EMIs and can not make future payments, the lender first attempts to recover the due sum by means of settlements and recuperation agents. If such attempts fail and your credit account is marked as a default, the loan will appear as a default on your credit report which will have adverse effects on your credit score and make it difficult for you to obtain future credit and credit card permits.

Tax advantages

Though personal loans typically have no tax benefits, you are eligible for A deduction under Section 24 if you take one for home renovations / down payment. This tax benefit, however, is limited to the interest, not the principal sum. You will also have to furnish proper receipts in order to claim the deduction.