Personal Loan

What Is a Personal Loan?

A personal loan is money you borrow and pay back with interest over multiple years. You can use the loan for almost any purpose.

A personal loan is money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, or installments, typically over two to seven years. Lender rates can range from 6% to 36% APR.

Most personal loans are “unsecured” — not backed by collateral. A secured loan backed by something you own is typically cheaper, but you can lose the asset if you default. You usually can use the money for any reason.

Different Types of Personal Loans in India

One can use your loan for any purpose as long as it is legal. However, there are certain lenders who provide different loan products on the basis of the purpose which is mentioned by the borrower in the loan application. On the basis of utilization, these are the different types of personal loans which can be availed in India:

Personal Loan for Wedding: As the name suggests, a loan which is offered particularly for the purpose of meeting the expenses of a wedding is a wedding loan.

Personal Loan for Home Renovation: A home renovation loan is availed to meet the expenses of repairing or renovating your home.

Personal Loan for Vacations: A holiday loan is especially designed for vacations. You can avail a loan for your vacation and pay the expenses on a later date through easy EMIs.

Personal Loan for Pensioners: A loan which is specifically offered to pensioners is known as a pension loan.

Personal Loan for Festivals: Certain lenders offer a personal loan exclusively for festivals. If you are looking for a loan to make arrangements for a festival, you can apply for a festival loan.

Personal Loan Eligibility

Criteria

  1. Age
  2. Net Monthly Income
  3. CIBIL Score
  4. Minimum Loan Amount
  5. Maximum Loan Amount

Salaried

21 years to 60 years
Rs.15,000
Above 750
Rs.50,000
Rs.25 lakh

 Self-Employed

22 years to 55 years
Rs.25,000
Above 750
Rs.50,000
Rs.30 lakh

Documents Required for Personal Loan:

Requirements

  1. Proof of Identity
  2. Proof of Residence
  3. Proof of Income

Salaried Individuals

Passport, Voter’s ID, Driving License or PAN Card
Passport or utility bills
Bank statement of salary account for the past two years

Self Employed

Passport, Voter’s ID, Driving License or PAN Card
Passport or utility bills
Audited financial statement of the past two years

if you are an NRI looking to borrow a personal loan, these are the documents that you will need to submit to the lender:

  • Copy of your Passport
  • Visa Copy
  • Your official Email ID or the Email ID of the HR
  • Bank Statements
  • Salary Certificate or salary slips
  • NRO/NRE bank statements of the last 6 Months
  • Proof of Identity, Residence, Income, and Assets
  • Recent passport-size Photographs of yourself and the guarantors
  • Other Fees & Charges
  • Processing fee
  • Goods and Services Tax or GST
  • Verification charges
  • Charges levied for issuing duplicate statement
  • Penalty for defaults
  • Penalty for pre-payment and part payment of loan

In addition to these, the lenders might also levy charges for documentation, stamping, credit administration,collection, and so on. The levy and the rates of these fees and charges differ from lender to lender. However, you can check the fees and charges which are levied by the top lenders in India before you apply for a personal loan.

How to Improve your Chances of Getting a Personal Loan?

Credit Clean-up: One of the main factors taken into consideration by lenders is your credit score. Getting a personal loan is easier with a high credit score. If your score is low, you must check your reports to see if there are any errors. Sometimes, simple errors could have an adverse effect on your scores, and if you find any of these, you must report them to CIBIL.
Rebalancing your income and debts: Lenders ask for proof of income when you apply for personal loans in order to ascertain your debt-to-income ratio. Consider the sale of liquid assets like stocks or earning more through a part-time job to increase your annual income. Doing so will increase your debt-to-income ratio and increase your chances of getting a loan.
Consider Co-signers/Guarantors: If you are finding it hard to get a personal loan on your own accord, you can apply for one by adding a co-signer or guarantor. The person you choose as a guarantor must have a good credit score. Their main aim is to guarantee that you will repay the loan. However, they will also be liable to repay the loan themselves if you are unable to do so. Picking an individual with a credit score over 750 will considerably increase your chances of getting a personal loan.
Limit Your Borrowing: It can be risky to ask for more money than you require to meet your financial targets. Make sure that you calculate how much you need and apply only for that specific amount.
Choose the Right Lender: Every lender has their own requirements when it comes to credit scores and income. When looking for personal loans, pick a lender whose eligibility criteria you meet and apply accordingly. The problem with applying with multiple lenders is that each of them will check your credit score, and each time your full credit report is pulled out, your credit score drops, albeit marginally.
Pre-Payment and Part Payment in Personal Loan. A personal loan is given for a stipulated time period. This period is known as the loan repayment tenure. After you have taken a loan, you are expected to pay the debt off by the end of the loan repayment tenure through EMIs. However, after availing a loan, if you decide to pay off your debt before the end of the loan repayment period, it is called pre-payment or foreclosure.

Tips for Successful Personal Loan Application

  • Assess the need for your loan
  • Do proper research to get the best rate
  • Check your credit history
  • Review the fine print on your loan document carefully
  • Choose your loan tenure by assessing your repayment ability
  • Choose an affordable interest rate
  • Select your loan amount as per your convenience
  • Check your EMIs properly
  • Compare the processing fee
  • Select fixed or variable interest rate according to your preference

Do’s

  • Do proper research before you apply for a loan
  • Do read the fine print carefully
  • Do save your money carefully when you are repaying
  • Do pay your loan instalment promptly every single time
  • Do evaluate your credit score thoroughly
  • Do apply for an affordable loan amount

Don’ts

  • Do not sign your loan documents without understanding every point
  • Do not make multiple inquiries regarding loans from different banks
  • Do not take a personal loan without any serious purpose
  • Do not be in a hurry to end your loan comparison process
  • Do not forget to pay your loan instalments
  • Do not accept bad loan products

Types of Pre-Payment:

There are 2 types of pre-payment. They are – full pre-payment and part pre-payment or just part payment.

1. Full Pre-Payment:
If you are paying off the whole outstanding loan amount before the end of the loan repayment tenure, it is known as full pre-payment.

Advantages of full pre-payment:

  • You can avoid paying hefty interest on your loan amount.
  • If you have the money to pay off your debt completely, you might as well get rid of the debt.
  • You can avoid paying pre-payment interest as well, if you have taken the loan from a lender who does not charge an interest on pre-payment of the loan.

Disadvantages of Full Pre-Payment:

  • If your lender charges a penalty on pre-payment of the loan amount, you might have to pay a big chunk of money for pre-paying your loan.
  • Before you foreclose a loan, check the other factors related to it. Foreclosing a personal loan means that you would be paying out a huge sum of money at once. This might not always be the best option.

2. Part pre-payment:
If you are paying off a part of the outstanding loan amount before the end of the loan repayment tenure, it is known as part pre-payment.

Advantages of part pre-payment:

  • You can choose to pay off a part of your outstanding loan amount if you have some readily available money.
    Part paying your loan will reduce the outstanding principal amount which, in turn, will reduce the effective EMI amount.
  • The overall interest that you pay will also reduce significantly.

Disadvantages of part pre-payment:

  • If you do not make the part payment soon enough, you will not be able to maximise your savings.
  • If your lender charges a fee for part payment of personal loans, you might have to spend a significant amount of money for the same.

Things to do After Closing a Personal Loan

If you have recently paid off your personal loan (either repaid or foreclosed), you might have the idea that your obligation towards the loan is over. However, that is not the case. There are certain things that you should do after paying off your personal loan.

The No Dues Certificate or NDC: The No Dues Certificate or NDC is issued by your lender once you pay off the debt. This is one of the most important documents that you should collect immediately after paying off your loan. It is also a wise decision to retain this document for an extended period of time. This certificate validates the repayment that you have made. Without this document you cannot prove that you have paid off your debts. In case you are looking forward to taking another loan in the near future, you will need this document to prove that your previous loan has been paid off. Usually, this document is issued on spot by your lender if you are paying off the final amount through hard cash. If you are paying via check or NEFT or any other means, the lender will issue the NDC and will either send it to your registered address or will ask you to collect it from the branch office of the lender.

The Statement of Account or SoA: The Statement of Account or SoA, along with the NDC will help you prove that your debts have been completely paid off and have been paid on time. This is an optional document which is often issued by certain lenders. If your lender provides this document, you should consider getting it. However, you should also look for any sorts of discrepancies in the credit score. If you find something wrong, you can use the SoA to make the necessary changes to it.

Collection of unused cheques: If you have some cheque leaves which have not been used, you should collect those as well. The collection of the No Dues Certificate and the unused cheque leaves, usually, marks the end of the closure process for the loan.
Check your credit score after closing the loan: This is just a recommendation. It is not compulsory to check the credit score after the closure process ends. However, it is recommended that you check the score to make sure there are no differences in the score. If there are some chances of you availing another loan within 1 to 2 years of the closure of the current loan, it is highly recommended that you check the credit scores right after the closure of the loan.
Modes of Loan Payment or Repayment
There are a number of repayment modes which are offered by lenders. Although these modes might differ from lender to lender, the most common modes of repayment can be summed up as follows:

Electronic Clearance System or ECS: The ECS or Electronic Clearance System is one of the most commonly used repayment methods. It is an electronic mode through which funds are transferred from one bank to another.
Post Dated Cheques or PDCs: Post Dated Cheques, as the name suggests, are cheques which are issued by you for a future date. The lender will use these cheques on the mentioned date to deposit or encash the amount mentioned on it.

National Automated Clearing House: The National Payment Corporation of India (NPCI) offers a program called NACH to all the banks and financial institutions. The NACH allows the processing of transactions in real time. This method can be used for your loan repayments.
Debit mandate or standing instruction: You can give an instruction to your bank to pay off a particular amount of money to another bank or bank account at a regular interval. This is known as standing instruction or debit mandate. Your bank will be paying off the stipulated amount towards the repayment of your loan on a regular basis through this system.

How to Check Personal Loan Status?

There are two main modes of checking the status of your loan application. Most lenders offer both online and offline modes through which you can keep tracking your loan status.

1. Online Mode: Most lenders offer the option of logging in to their official portal to help you track the status of your loan application. You can use the application number or reference number which is issued by the lender for this purpose. On the other hand, if you have applied for a loan through a third-party aggregator website such as BankBazaar, you can just log in to its web portal and track the status of your loan application directly.

2. Offline Mode: If you are not comfortable using the online platform, you can also track the status of your personal loan application through the offline means. You can visit the branch office of your loan provider and check the status of your loan application. On the other hand, you can also connect with your lender over the telephone through their helpline or customer care number.

For both these methods, you would be required to provide a few basic details such as your name and the application number or reference number.

How to Get Personal Loan Statement?

You can easily get in touch with your lender either through their online web portal or in person and request for your loan statement. On most lender websites, you can just log in using your online credentials and provide your loan account number. Once you have tracked your account, you can request for a statement which is either sent to your registered email ID or provided in the form of a PDF file which can be downloaded. Similarly, you can also visit the branch office of the lender from where you have availed the loan and place a request for a statement. In addition to that, you can raise a request for your personal loan statement through phone banking as well.

How to avoid rejection of personal loan application?

The approval of a personal loan application depends on a number of factors. When you apply for a loan, you should make sure that you are sufficiently fulfilling all the factors to ensure the approval of your loan application. The eligibility criteria for personal loans may vary from lender to lender, however, there are number of common criteria which include the age of the applicant, his or her income, credit score, status of employment, and so on. Before you apply for a loan, make sure that all the eligibility criteria are being fulfilled. This will help you avoid rejection of your loan application. Although there are other options which you can resort to in case your loan application gets rejected, it is recommended to double check before applying to avoid the chances of rejection of application.

Personal Loan Top Up

A personal loan customer can avail an additional loan amount through the top-up facility over his/her existing loan. The loan amount will be subject to the terms and conditions set by the financial lender, while the interest rate may be the same as the existing loan or could be up to 1% more than the interest rate of the current loan. The tenure of the top-up loan will be subject to that of the existing personal.

Key features and benefits:

  • Existing personal loan customers are eligible for the loan top-up provided that they have paid their EMIs regularly and have no pending payments.
  • Quick or instant disbursal of the top-up loan amount.
  • Minimum documentation required.
  • Zero processing fee offered by a number of lenders.
  • No collateral required.
  • Personal Loan Balance Transfer
  • The personal loan balance transfer facility gives customers the benefit of transferring their existing loan to another financial lender. This can be done if the other financial lender is offering a better interest rate, if the tenure is a lot more flexible, if they wish for a top up on their existing loan, etc.
  • Get a reduced interest rate on the existing loan amount.
  • Option to top-up the loan.
  • Avail flexible repayment options.
  • Avail benefits such as zero processing fee, waiver of last EMI benefit, etc.
  • To get better customer care service.