In today’s time, anyone can suddenly need money. Be it children’s education expenses, wedding arrangements, medical emergency, home repairs or any other personal need, Personal Loan comes as an easy financial option in such times. This is the reason why the number of people taking personal loans has increased rapidly in the last few years.
However, many people have questions in their minds that what is a Personal Loan, how does it work, who can take it and how to apply for it. In this article we will understand all the important information related to Personal Loan in easy language.
What is Personal Loan?
Personal Loan is a loan that banks, NBFCs (Non-Banking Financial Companies) or other financial institutions provide to a person to meet his personal needs.
Unlike other loans like home loan or car loan, personal loan does not require you to provide proof of any specific purpose. You can use this amount as per your need.
For example:
- for wedding expenses
- for medical emergency
- for home repairs
- for education related expenses
- to travel
- to repay old debts
For this reason, Personal Loan is also called Unsecured Loan, because it usually does not require mortgage of any property.
How does Personal Loan work?
When you take a personal loan from a bank or financial institution, you are given a fixed amount. You have to repay this amount in monthly installments (EMI) during the fixed tenure.
EMI consists of two things:
- Principal Amount
- Interest
For example, if you have taken a personal loan of ₹ 5 lakh and its tenure is 5 years, then you will have to deposit a fixed amount as EMI every month.
Benefits of Personal Loan
1. Immediate availability of funds
The biggest advantage of Personal Loan is that you can get money quickly when needed. Many banks approve the loan within a few hours or 1-2 days.
2. No guarantee required
Most personal loans are given without collateral of any property.
3. Freedom of use
You can use the loan amount for any of your personal needs.
4. Easy application process
Today almost all banks provide the facility of online application.
5. Long repayment period
Most banks offer EMI tenure ranging from 1 year to 7 years.
6. Help in improving credit score
If you pay EMI on time then your credit score becomes stronger.
Disadvantages of Personal Loan
1. Interest rates relatively high
The interest rate on Personal Loan can be higher than that of Home Loan and Car Loan.
2. EMI pressure
Financial pressure may increase if EMI is not paid on time.
3. Effect on Credit Score
Delay in EMI can spoil your credit score.
4. Additional Fees
Some banks also charge processing fees, prepayment charges and other charges.
Eligibility for taking personal loan
Rules may vary from bank to bank, but generally the following eligibility criteria are required:
- Must be an Indian citizen.
- Age should be between 21 to 60 years.
- Have a source of regular income.
- Have a good credit score.
- Necessary documents should be available.
What should be the credit score?
Credit score plays an important role in getting personal loan approved.
Generally:
- 750 or more – excellent
- 700 to 750 – good
- 650 to 700 – Average
- Less than Rs 650 – Difficulty in getting loan
Having a good credit score increases the chances of getting a loan at a lower interest rate.
Documents required for Personal Loan
The following documents are generally required at the time of loan application:
identity proof
- Aadhar card
- PAN card
- Voter ID
- Passport
address proof
- Aadhar card
- electricity bill
- bank passbook
- Passport
income proof
- salary slip
- Bank statement
- Income Tax Return (ITR)
other documents
- passport size photo
- mobile number
- email id
How to take Personal Loan Online?
Nowadays, most of the banks provide the facility of online application.
Step 1: Select Bank or NBFC
First of all compare the interest rates and terms of different banks.
Step 2: Go to the website or app
Open the official website or mobile app of the selected bank.
Step 3: Select Personal Loan option
Go to Loan section and click on Personal Loan option.
Step 4: Fill the Application Form
Enter your name, mobile number, income and other required information.
Step 5: Upload Documents
Upload Aadhaar, PAN and income related documents.
Step 6: Verification Process
The bank will check your information and credit score.
Step 7: Loan Approval
If found eligible the loan will be approved.
Step 8: Get the amount into account
After approval, the loan amount is deposited directly into your bank account.
What things should be kept in mind while taking a personal loan?
compare interest rates
Always compare the interest rates of different banks.
Check EMI Capacity
Choose an EMI that you can easily repay.
View hidden charges
Read the Processing Fee and other Charges carefully.
Take loan only when needed
Avoid taking personal loan for unnecessary expenses.
Pay EMI on time
This will keep your credit score good.
Difference between Personal Loan and Credit Card Loan
| Base | Personal Loan | Credit Card Loan |
|---|---|---|
| Amount | More | Limited |
| Duration | long | Comparatively less |
| Interest | medium | More |
| EMI | Available | Available |
| Use | for any need | limited credit limit |
Is it right to take a personal loan?
If you need money for some urgent work and do not have enough savings, then Personal Loan can be a good option.
However, before taking a loan, evaluate your income, expenses and ability to repay EMI.
our approach
Personal Loan is a useful financial instrument to provide financial assistance in times of need. But it should be taken only in necessary circumstances. Before taking a loan, it is important to get complete information about the interest rate, EMI and other charges. If you use the loan responsibly and make timely payments, it can go a long way in meeting your financial needs.
FAQs
1. What is Personal Loan?
Personal Loan is a loan that a person obtains from a bank or financial institution to meet his personal needs.
2. Is guarantee required for personal loan?
Most personal loans are given without any guarantee or collateral.
3. Up to what amount can a personal loan be availed?
It depends on your income, credit score and bank policy.
4. What is the minimum age for Personal Loan?
Generally individuals aged 21 years or above can apply.
5. How much time does it take to get a personal loan?
In some cases the loan may be approved within a few hours to 2-3 days.
6. Can I get a personal loan with a bad credit score?
The chances are slim, but some institutions may offer loans with additional conditions.
7. Personal Loan can be applied online?
Yes, most of the banks and NBFCs provide the facility of online application.
