Personal Loan

What is a personal loan?

A personal loan is a loan from a person to fund any personal expenses such as wedding, renovation of the home or even a vacation. In contrast to many other kinds of loans, the use of the borrowed amount is not restricted-the borrower is fully entitled to make use of the money for any purpose he wants. Personal Loans are the loans that are offered to eligible people who have reasonable pay from the listed companies. Personal loans are usually provided by Banks and NBFC’s (Non-Banking Financial Company). Specifically loans are distributed without any collateral security; simply there is no risk on your own property.

Personal Loan & Interest Rate Ranges

When should I select a personal loan?

If you need money quickly and relatively short-term, a personal loan is a good alternative. The disbursement of the loan may be relatively faster than for most other Loans, since documentation is not required for the purpose of the loan. For example, for a home loan you must obtain the legal documents related to the title document of the property, all government approvals necessary and other supporting documentation.

Since you are free to use your personal loan for any purpose, no documentation is required for this purpose. If you have no assets to guarantee a loan as collateral, a personal loan may be a good option. To secure their cash, lenders will examine your credit and reimbursement history to determine whether you are a low-risk client and decide to accept your request.

What is the typical personal loan amount and loan period?

There is no common amount of loan and the loans can be between Rs.10,0 000 and Rs.60 lakhs. The amount that you apply for a personal loan must be in line with your ability to make repayments. The final amount of the loan approved, of course, depends on the loan criteria used by the bank / NBFC and how you evaluate your repayment ability.

Personal loans are relatively short-term loans for tenure, and the tenure can range from 1 to 5 years. This is in contrast to, for instance, home loans which can be reimbursed for decades.

What is the main factor in approving an application for a personal loan?

Your credit score and credit report are the most important factors to determine whether or not your personal loan is approved. What does that mean?

Three credit rating agencies or credit agencies are authorized by RBI to produce credit reports and credit results. They collect and maintain records of all credit activities with banks, credit card companies and other official lenders. These lenders report on all your credit transactions on a monthly basis. This includes details of your EMI and payments by credit card (including late or missed payments), balance, any changes to your total credit limit and all other details related to creating your credit profile.

A complex mathematical formulation is used to calculate your credit score on the basis of all these data. This score reflects your past and present lending behavior and provides potential lenders with a snapshot of their lending value. If you have a good record of completing all your payments, your score tends to be high. If you have a history of payments default or excessive credit, your credit score will have a negative impact.

How does a credit report play a role in sanctioning a personal loan?

Since you don’t guarantee a personal loan to the bank / NBFC, the lender risks losing money if your payment defaults. This is why lenders analyze your credit report (CIR) or credit report to assess your credit record and to track your repayment behavior over the years. This provides them with an idea of your credit discipline and enables them to assess whether you are a high-risk or low-risk client. An overall responsible loan conduct which shows a consistent record of repayments on time is a key factor for lenders to approve a personal loan application.

Minimum Credit Score

It is generally advisable to qualify for a personal loan with a credit score of 750 or higher. The higher your score, the more likely you are to be approved. As an initial step, lenders typically look for a minimum loan score of 750 before deciding whether to proceed with the application. Since personal loans are not guaranteed by a security deposit, lenders will examine your credit history to determine whether you can be trusted to meet your obligation.

A credit score of 750 indicates that over a significant period of time the customer has demonstrated consistent track records of timely repayments. Lenders are assured that such customers are not at high risk of payment default and are more prepared to accept the personal loan.

My credit score is less than 750. Am I eligible for personal loan?

There is no guarantee that you’re approved for a loan at any given point. Your chances to be approved however are much higher if you have an overall score of 750. At the same time, a score slightly lower than 750 doesn’t necessarily mean your application is refused.

Below are some likely results of your application for your personal loan:

Credit scores 300-599 – You are not entitled to a personal loan. A low score in this area is a warning to lenders that you do not have a good credit history. Most lenders will immediately reject your application. You have to take immediate steps to reconstruct your credit health and improve your score to the level where you are eligible for a loan.

Credit scores 600-749 -Although it’s not a high score, some lenders could agree to it. You might be prepared to examine other factors, such as the stability of your job, your annual salary and the extent of your other liabilities. If they think that despite your score, they are able to meet your reimbursement burden; your application will be approved. However, it is advisable to increase your score to 750 if you plan to apply for a personal loan. In addition, before you apply for the loan, you should raise your score so that you can benefit from attractive terms and conditions for customers with good credit score.

Credit scores 750 and above –You are very likely to get a loan with such a score. A high score has several other benefits: the acceptance process will be much faster; the loan amount could be larger; and you could negotiate a lower rate of interest. The whole process of loan approval is much easier if you have a high credit rating.

What other factors, apart from credit history, influence the approval of a personal loan?

1. 1. Your work is also an important factor in the process of loan approval. As personal lending customers do not offer collateral, lenders have to ensure that they have a consistent monthly income throughout the lending period that enables you to make regular repayments. That is why you pay special attention to your employment status. You’ll see if you have a stable job and have been in the same job for some time. If you have a long history of often changing jobs, you may not easily be approved for a personal loan because it means that you might not have a stable and predictable salary over the loan period and you may not be able to pay regularly. It may be a good idea to work at least one year in advance of applying for a personal loan.
   2. Another important factor is your annual income. Again, the banks want to make sure that they have enough revenue (salary and other sources) that they can make your monthly repayments, as there are no collateral. The higher your income, the higher your chances of a personal loan will be.
   3. Your EMI record of payment is also important. Lenders will check your credit report if you have shown consistently financial discipline and a timely pattern of EMI payments. If you see your payments on a regular basis and fulfill your debt obligations, you will be inclined to see your application for your loan more favorably.

Which factors affect the personal loans interest rate?

It is important to note that personal credit is the most costly credit in the formal system of consumer banking. Since they are’ unsecured’ they incur the highest interest rates, and the bank / NBFC has no default safeguard. There are a few factors influencing the interest rate on a personal loan

Amount of a loan compared to your annual income: If the loan is a small proportion of your annual income, your rate will tend to be lower. Instead, if your loan amount is a high proportion of your annual income, lenders may not be confident that you are able to pay back, and may insist that the loan rate is higher.

Credit report and credit score: Because this is an unsecured loan, lenders are especially aware of your past credit behavior to assess your ability and willingness to pay. Generally speaking, the higher your credit score, the better you get the interest rate. The lenders are confident that you have a good record of meeting your debt obligations and can negotiate a lower interest rate with them.

What is the transfer of personal loan balance?

The concept of a personal loan balance transfer is inspired by the possibility of transferring the balance of credit cards from one provider to another. Similarly, a transfer of personal credit balance allows the outgoing balance of the individual credit to be transferred from the current creditor to another creditor with lower interest rates. You must carefully evaluate the balance transfer offer and select the person who provides the maximum savings on the interest to be paid.

Transfers of the personal loan balance do not require any borrower collateral. However, the present creditor may charge a few forfeiture fees and, where applicable, the new lender would charge some fees along with the stamp duty for the loan agreement. Include these costs as well as the best balance transfer offer.

Personal Loan Balance Transfer Features

The transfer of personal credit balance comes with a number of features. Some of the following are given:

Low Interest Rate

One of the main characteristics or benefits of a transfer of personal loan balance is that it often offers better or lower interest rates. The new lender usually gives a lower interest rate on the loan move. It reduces the borrower’s interest burden by raising the EMIs.

Longer repayment period

Balance transfer most also helps you to renegotiate loan terms, such as extending the loan repayment duration of the new lender. The monthly EMI pressure would be popular. It can, however, lead to higher overall interest payments. Many lenders can also provide you with the option of can your repayment. While opting for a short term can lead to higher monthly EMIs, the overall interest cost of the loan can be reduced.

Avail Bonus benefits

You can obtain an offer from other borrowers for better loan benefits such as waiver of the last EMI, zero processing fees and lower interest rates, etc. based on the past payment record and changing income profile. The facility for the transfer of the personal loan balance can not only raising the personal loan interest burden but can also give the borrower a loan with better features.

Top-up loan facility

Most banks permit an improved credit facility and transfer of personal credit balance. When the borrower requires more cash, a balance transfer may also be considered. Many lenders or financial institutions may provide new personal loans at a reasonable interest rate that is comparatively small if the unpaid personal loans are ready to be moved from the current lender to a specific lender of personal loans. Most lenders provide personal loan balance transfer and personal loans with minimal paperwork and no hassle. In the case of supplementary loans, the outstanding loan balance shall be paid directly to the previous lender and the new loan amount shall be credited to the borrower ‘s account.

Better services

The transfer of personal loans balance also often helps you to benefit from improved services in situations where you are not happy with the services given by the existing lender or financial institution. Through the balance transfer facility you can opt to go to a provider that provides better facilities than the current one.

Personal Loan transfer Charges

The moving charges of your personal loan can vary depending on your current bank and the new bank. The main loan transfer charges include foreclosure charges payable to your existing bank and processing charges. Closing fees are charged for personal loans to existing banks. These rates can vary from one bank to another from nil to 2%.

Processing charges shall be charged by transfer to the new bank and may range from a flat rate of Rs. 999 until 2% of the amount of the loan. Yet banks provide discounts from time to time on payment charges and you can look for competitive deals with markets to get the best personal loan balance transfer service.

Personal Loan with Low Cibil Score

When you approach lenders for a personal loan, it is usually the first thing they do. Your credit score is a score from your credit history, the amount of credit you get, your ability to repay, etc. Since personal loans are guaranteed free or unsecured loans, lenders will assess whether loans are risky and a credit score will help them to determine this. While the idea is generally that low-credit persons can not get a personal loan, the truth is that many lenders offer personal loans to low-credit persons. Certain of them were listed below:

What’s a CIBIL scoring?

Your credit value is known to the bank and other financial institutions through your CIBIL (Credit Information Bureau Limited) score. This is a number which is linked to you and tells the bank how responsible you are for your credit cards and loans. The CIBIL score for the approval of a loan is one of the parameters used. The CIBIL score was the first credit rating system ever in India and is recognized by all banks as a credit rating agency.

How does Score work? How does it work?

The way in which the CIBIL score system works is similar to that found in many countries. A score, a number, is assigned between 300 and 900. The number you receive is because of the information the banks send to CIBIL. This information gathers your personal loans, home credits, vehicle credits and credit cards repayments. If you make all your payments on time, you can look forward to a good ranking. If you can skip payment or fail to repay your credit in time, it could decrease your credit rating, making it difficult for you to receive a credit approval over time. CIBIL will also provide fees for services that may boost or deteriorate your ranking, depending on how you pay your telephone, power or water costs.

What lower CIBIL score factors?

As CIBIL scores should be an indicator of your financial habits, the score changes depending on how you handle your credit cards and loans. These are some of the factors that may affect your CIBIL score negatively.

Personal loans:Because personal loans are unsecured loans, you can lose the credit score by taking too many personal loans.

Lack of loan installment: If you miss an payment on your loan, it can be perceived to be a poor financial preparation that would make it harder for you to protect your loans in the future.

Too close to the credit card limit: When you too close to the credit card limit too frequently, it also points to constant debt and the failure to manage money wisely, resulting in a reduction in your CIBIL scores.

Don’t pay credit cards on time: As with an EMI for your loans, you can have a detrimental impact on your credit history if you don’t pay your credit card dues in time.

Don’t pay maximum credit cards: You may think it’s enough to pay just the minimum sum owed on your card or only slightly more to keep things under control but it isn’t. While the banks are not too worried that they have an unpaid balance, CBIL takes it as a negative sign, on the other hand. For CIBIL, the excellent balance is not healthy and appears to may the ratings.

Without any credit at all: If you have no credit or credit card whatsoever, it may sound like a good place to go. This is because not having a credit history means that your credit value is 0 by default, which means you have higher chances of rejection if you apply for a loan or credit card.

Too many loan / credit card applications rejected: If you apply for a loan or credit card and you reject your application, you tend to apply with a bank and another, and so on. For two reasons, such practices reduce your score. Firstly, CIBIL constantly refuses to be a poor sign and, secondly, every time a bank asks for CIBIL credit information, your credit scores fall.

Credit Cards Settlement: If you have paid a lower amount than was due on the card, i.e. if you have negotiated with a bank and closed your card, your credit history will receive a red flag that might be troubled later on.