Personal loans are useful sources of funding for unforeseen costs. They can help with paying off large expenses or pulling oneself out of a financial cycle. Personal loans can be used to meet costs not covered by other loans, such as weddingswedding, home improvement, expensive travel, and even car upkeep. Personal loans are an example of unsecured credit. They don’t require any type of asset-based security, according to this. However, this also results in somewhat higher interest rates when compared to secured loans.
Applying for a Personal Loan
The procedure for applying for a personal loan online is straightforward; however, having the loan application approved may be more difficult. You would have to provide certain documents, such as KYC (know your customer) documentation, recent pay stubs, evidence of employment or income, etc., in accordance with the bank’s protocol. After completing the necessary paperwork, the applicant’s credit history is checked to determine their credit history and CIBIL score. This enables banks to determine how likely you are to repay the loan and how many loans you presently have available.
Eligibility Criteria for Personal Loan
- Personal loans are a versatile financial tool designed to meet various individual needs.
- To ensure responsible lending and minimise risks, financial institutions have established specific eligibility criteria for potential borrowers.
- This ensures that the borrower has a stable financial standing and is capable of repaying the loan.
- The minimum income threshold may vary based on the lender and the location.
- Creditworthiness, A good credit score is a crucial factor in determining loan eligibility.
- It displays the candidate’s credit standing and payback record.
- A lower debt-to-income ratio indicates a healthier financial position and enhances the likelihood of loan approval.
- Residential Status, The applicant must be a resident of the country where they are applying for the loan.
- Some lenders may also require proof of stable residence.
- These documents help verify the information provided in the application.
- Outstanding Loans and Liabilities, Lenders assess the applicant’s existing financial commitments, including any ongoing loans or credit card debt.
- This information helps in determining the applicant’s capacity to take on additional debt.
- Purpose of Loan, Some lenders may inquire about the intended use of the loan funds.
- While personal loans are versatile, certain lenders may have restrictions on specific uses.
Things to Consider While Taking a Personal Loan:
Despite being a profitable instrument for addressing personal financial requirements, personal loans have the potential to cause significant debt and related problems. Before submitting an application for any kind of personal loan, you should take into account the crucial considerations that we have listed below.
Assessment of Total Costs: When considering personal loans, it’s crucial to factor in more than just the interest rate. Additional expenses like prepayment fees, penalties, and processing charges play a significant role. Evaluating these costs ensures better planning and management of the loan.
Interest Rates: Personal loan interest rates typically range from 11.49% to 25%. However, comprehending the nature of the interest rate is equally important. While most banks offer fixed rates, some provide a reducing balance interest rate. This distinction impacts your monthly EMI.
Fixed Interest Rate: This entails a consistent interest amount on the principal throughout the tenure. The interest and EMIs are calculated flat based on the principal, tenure, and interest rate. This means a steady interest payment, regardless of the portion already repaid.
Reducing Balance Interest Rate: In this method, a portion of the EMI directly reduces the principal. As repayments progress, both the principal and liability decrease. Consequently, interest is calculated on the diminishing principal, resulting in lower overall repayment compared to a flat interest rate.
EMI Calculation: Accurate EMI assessment is crucial to avoid penalties and accumulating debt. Evaluate your current and projected income to determine a manageable EMI. Online personal loan EMI calculators offer a reliable means to compute the comprehensive loan cost.
Repayment Period: Banks typically offer standard repayment durations, usually not exceeding 60 months. The tenure selection is based on your repayment capacity and loan amount. While shorter tenures reduce total interest, they lead to higher EMIs. Conversely, longer tenures yield lower EMIs but entail higher overall interest expenses.
Active Loan Count: Your credit history and worthiness are directly impacted by existing loans. This affects your ability to repay a personal loan. Banks scrutinize your current debt load before approval. Applying with multiple outstanding loans, such as home or car loans, can lead to increased financial strain and potential rejection of your application due to perceived risk.
You can compare interest rates and apply for a personal loan from one of the many market participants in India in just a few minutes. You may plan and manage your loan using resources like the online EMI calculator in addition to learning about personal loan options from other institutions. Fibe is a leading instant personal loan app that you can try!