- June 11, 2020
- Posted by: Ganeshcbani
- Category: Blog
What is an Personal loan?
Simply put, this is a non-secured loan from a bank or NBFC for individuals to meet their personal needs. It is based on key criteria such as income level, credit and work history, repayment capacity etc. Unlike a house or a car loan, a personal loan against any asset is not guaranteed. As the borrower does not provide collateral such as gold or property to use it, the lender can not auction anything you own in the event of a default. The interest rates on personal loans are higher than on family, car or gold loans due to the greater chance they are seen when they are accepted.
However, as with any other loan, personal loan default is not healthy, as is reported in your credit report and causes trouble if you apply in future for credit cards or other loans.
Personal loan types:
Here are the various types of personal online loans:
Home Personal Loan Improvement
Something can be done to your home always, and an instant personal loan can help you accomplish it. From the renovation of the kitchen to the perfect combination of comfort and durability, a personal home renovation loan can be the solution.
Personal wedding loan
In India, a typical wedding cost an average of 25 lakhs! It is not an ideal option to exhaust all your savings for all wedding costs. You apply a personal loan online and cover the costs. Now it’s easy to plan a wedding.
Personal Travel Loan
You can get a personal loan to cover your travel costs, apart from home renovation or wedding. It can be an open option because it is convenient and economical. In addition, your credit card can alter your uses and help you save on interest costs.
Meeting working capital needs can be a complex task and routine activities can be impacted without collecting new funds. The best alternative for your short-term working capital requirements like accounts payable, salaries, etc. Personal loans can be
Private Top Up Loan
Personal credit is an enabling facility that enables you to borrow a certain amount of money from your personal loan from financial institutions. The rate of interest on an additional loan is slightly higher than the regular personal loan.
Flow of Personal Loan Balance
Do you know that you can save thousands on your personal loan interest costs? Well, that can help you with a balance transfer. You can pay off your existing loan at a lower interest rate with a new loan. Please notice that a personal loan balance transfer fee applies.
Avoid Before Applying for a Personal Loan
Do not test your credit report
Whenever you apply for loans, the creditors check your creditworthiness by collecting your credit report from credit agencies. Your credit score indicates how responsible you have been in the past. In general, banks and other institutions find a credit score over 750 to be safe. If the credit value for a borrower is less than 750, its application for a loan is likely to be denied. Some lenders practice credit risk pricing, wherein they determine the interest rates for the applicant’s credit score. In this case, you may get loan offers at lower interest rates with a strong credit score.
The review of your credit report before submitting a loan application will also avoid potential mistakes that may lead to a loan rejection from being resolved. Make sure the errors are reported to the office and lender concerned to have the correction done as soon as possible.
Applying Personal loan with many lenders
As soon as you submit your credit application directly to lenders, credit report requests are issued by credit offices to assess your creditworthiness. Such lender inquiries are called harsh enquiries, and they are listed in your credit report’s enquiry portion. The application of multiple loan applications will substantially reduce your credit score within a short time.
Instead of applying for direct personal loans, visit the financial market online to compare and select the most suitable lender based on your credit, revenue and other parameters of eligibility. Since such markets often receive your credit report from the offices, these inquiries are considered to be soft enquiries that do not impact your rating.
Compare Interest with different lenders
Since the interest rate of personal loans can be between 10.5% -24% p.a., it is advisable to visit financial markets online to compare the right loan product and lender based on your loan value, revenue and other eligibility criteria. Do not limit your comparison to the interest rate alone. Once zeroing into a single lender, you will always consider a distinction in transaction costs, advance payment charges and other relevant terms and conditions.
Ignoring your ability to repay
Lenders evaluate the reimbursement capacity by calculating your fixed income obligation, i.e. the proportion of your current income used in debt reimbursement. As FOIR applicants are generally preferred by lenders within 50 % to 60% (including EMI for the new loan), make sure they choose a lending tenure, whose corresponding EMI keeps their FOIR within this range. Lower repayment capacity borrowers can opt for a longer repayment tenure to make use of lower EMI. However, longer tenure would also mean greater overall interest payments and therefore consider prepaying your personal loans when surplus funds are available. Make sure that the net savings in interest rates greatly outweigh the lender’s prepayment charges, if any.
Not taking alternate loan options into account
Do not ignore alternative options for loans, such as guaranteed loans, such as home loans, securities loans, property loans, and FDs loans. Like personal loans, the end-use restrictions of these loans do not normally include lower interest rates and longer tenure options than personal loans. For example , current home lenders are usually able to apply for supplementary domestic loans at interest rates as low as 8 percent p.a. and tenure up to 30 years, depending on the tenure of the residual house loan. Similarly, those with substantial long-term investments can consider using securities loans to meet their financial shortcomings without selling their securities at low interest rates.
Yes, however, some banks only allow borrowers to prepaid the loan after certain repayments have been made. Some lenders do not require partial payment in advance. Prepaid payments can be charged on the remaining balance of the loan.
Main documentation necessary to apply for a loan
Although the documentation requirements vary from financial institution to financial institution, you have to submit your personal application for loan in certain key documents:
* Evidence of income (Salary slip for salaried / recent self-employed ITRs)
* Proof of contact documents
* Documents with evidence with identification
* Certified graduation / license copies (in the case of self-employed persons)
It can be repaid through post-dated (PDC) checks drawn for the bank or via issuance by the Electronic Clearing Services (ECS) system of an EMIs mandate.
Prepaid / pre-payment costs
If you want to pay your loan before it expires, an extra fee is paid called an advance / pre-payment / penalty. This penalty normally ranges from 1% to 2% of the principal. However, some banks charge a higher amount to repay a loan.
Difference between partial payment, advance payment and preclusion
This amount is smaller than the entire sum of the loan and is paid before the amount of the loan is due.
If you pay off part of your loan before it is due under the EMI schedule. The amount of advance payment may or may not equal the total amount due. Prepaid charges are usually 2-5% of the outstanding amount of the loan. In addition, many banks do not require advance payment / printing prior to the completion of a certain number of EMIs.
Involves the settlement of a personal loan before the end of the tenure of the loan. Like advance payment, preclusion charges vary from 2-5% of the loan sum.
Process of loan approval
The approval shall be at the sole discretion of the borrowing agent who decides based on the criteria laid down by the bank and the financial institution. The whole process can take 48 hours to approximately 2 weeks. When all the documents necessary are presented and the verification process is completed, the loan is disbursed by the bank, if approved, within seven working days. Maintain all necessary documents in conjunction with the PDC and/or signed ECS form in order to prevent lending delays and disbursements.