Personal Loan – Interest Rates, Eligibility, Features, and Factors Affecting Eligibility: A personal loan is a loan that an individual takes out to cover their financial obligations or needs. This loan can be useful if you have unexpected costs to pay.
Individuals can use personal loans to consolidate high-interest debts and pay for wedding expenses and education expenses. They also can use them to fund large purchases and travel.
The loan is normally taken from a bank, NBFC or other financial institution at a pre-agreed rate.
Personal Loan – Interest Rates, Eligibility, Features, and Factors Affecting Eligibility
Personal Loans: Features and Benefits
1) Personal loans, which are unsecured loans, are not subject to the applicant’s need for collateral. They are determined by the borrower’s creditworthiness and history.
2) A home loan or car loan can be used to purchase a house, or a vehicle. You can use funds from a personal loan for any purpose.
3) Your convenience can determine the length of your loan.
4) Personal loans can be applied for with minimal documentation (such as proof of income, address and proof of identity).
5) You can get cash quickly with instant loan disbursement.
6) The amount of the loan depends on many factors such as income source and repayment capacity.
7) The loan amount can be as low as Rs.10,000 to as high-end as a few lakhs.
Factors That Affect Personal Loan Eligibility
1) Credit Score
A credit score is a 3-digit number that indicates how creditworthy you are to the lender. It is a measure of how well you have managed finances and bills in past. The higher your score, the better your chances of getting a loan approval.
Because they believe that the borrower might default on their loan repayments, many lenders won’t finance individuals with lower credit scores. You can improve your chances of getting a loan by checking your credit score first. If it’s low, you may be able to work on it before applying.
2) Monthly Income
Because collaterals are not used to back personal loans, it is crucial that you have a monthly income and a high repayment capacity. The income requirements depend on where you live, such as. It may differ between metro areas, tier-1 cities and tier-2 towns, as well as between villages and towns.
3) Work Experience
Lenders don’t consider applicants who have just started a business or are currently employed as financially secure. Lenders will approve applications with enough work experience because they think applicants have sufficient savings and financial plans.
It is preferable to have at least two years experience; the applicant should have worked for the current employer for at most one year.
4) Liabilities
If you want your loan application approved, it is important to know what your current liabilities are.
If you have previously applied for a personal loan and are currently paying large credit card debts, such as home loan EMIs or car loan interest rates, the lender might decline your application.
This is because your monthly income might be used to repay loans, leaving you less money to spend on your home.
5) Age
The approval of the loan is affected by the applicant’s age. Lenders will verify that the borrower is at least 18 years old to make sure they can repay the loan.
To be eligible for loan approval, salaried applicants should be between 23 and 58 years old, while self-employed, non-professional applicants must be between 28 and 65 years.
When should you take out a personal loan
1) Pay off higher-rate debt
Individuals may seek out a personal loan if they are unable to pay a credit card bill, or a loan with a high interest rate. This will allow them to immediately repay the high-rate debt and make monthly repayments of the personal loan.
2) Medical Emergency
A personal loan is available to individuals who have an emergency medical situation and do not have the funds to pay for it. It is convenient to have access to personal loans in an emergency, as a few lenders provide them instantly.
3) Education Expenses
A personal loan may be the best option for you or your loved ones if you are pursuing higher education.
4) Downpayment for car/house
A minimum margin of 10%-15% will be required on a home loan and a car loan. You will need to contribute between 10% and 15% of the property’s total cost. To cover the cost of this property, you can apply for a personal mortgage.
5) Finance your Business
People may use personal loans to fund their businesses. You may need cash immediately to replenish inventory or ship bulk orders to your client. This situation might require you to wait a few days for your documentation to be reviewed before you apply for a business loan. This is where a personal loan might be beneficial.
6) Wedding expenses
It can be costly to organize a wedding ceremony, especially in India. You can get a personal loan if your needs exceed your budget. The loan will be repaid later.
7) Vacation
A personal loan can be used to finance your dream vacation if you don’t have the funds. Once you have returned home, it is possible to repay the loan.
Eligibility Criteria
There are different criteria that can be used to obtain a personal loan. Here are some guidelines to help you understand.
Particulars |
Salaried Applicants |
Self Employed Applicants |
| Age | 23-58 years | 28-65 years |
| Income | Rs.25,000 per month | Annual turnover of Rs.40 Lakh |
| Minimum Experience | 2 years, minimum 1 year of employment with current employer | 2-3 years of experience in business with the current company |
Documents required
Salaried |
Self-employed |
| Apply form with photograph
Identity and residency proof Last six months’ bank statements Checks for processing fees The latest salary slip Form 16 |
Apply form with photograph
Identity and residency proof Last six months’ bank statements Proof of business Profile of the business and last three years’ income tax returns (self, business) Last three years’ balance sheet and profit and loss statement |
What you need to know
Interest Rates – Personal loans have unsecured interest rates, so they could be higher. It is better to choose a fixed rate or a variable interest depending on whether the bank or NBFC offers it.
Penalty Charges – If you don’t pay your dues/EMIs in time, banks and NBFCs may charge a steep penalty to your loan.
Analyze the Necessity – Personal loans or any other loan are only for genuine and immediate needs. Avoid taking out a loan if you can manage your finances without it.
How to Apply
Step 1: Determine your eligibility to receive a personal loans.
Step 2: Do your research on personal loans and choose a few lenders you find to be favourable.
Step 3: Visit their branch or visit their website.
Step 4: Fill out the application and attach all documents to your inquiry about the offer.
Step 5: Your application will be processed by the bank and you will be notified about their decision within a specified time.
With digitisation, you don’t have to visit the bank multiple times to apply for a loan. Online application is now possible. After you are familiar with the process and have agreed to the terms of your personal loan, the bank will request the necessary documents.
It initiates the loan application process. This includes checking your CIBIL score, assessing the financial need, and so forth. After reviewing all documentation, the bank will make a decision about your loan application.