When you have some important expenses like a holiday trip abroad, household shifting, marriage in the family, payment of credit card bill, repayment of an existing loan, medical emergencies and many more but don't have enough money for the same, personal loan helps you to easily pay off such expenses.
Personal loans are unsecured loans offered by banks without any collateral such as your home, flat, property, etc. Personal loans are usually available at fixed interest rates where interest rates are based on your credit score. The better your credit score, the lower your interest rate and vice-versa.
Personal loans aren't cheap but expensive one. The beneficial part is that they can be easily available and their processing is very fast as compared to other types of loans like home loan, education loan, car loan, gold loan, etc.
A personal loan is offered at a higher interest rate than a secured loan due to higher risk involved as you are not asked for any collateral to ensure repayment.
These personal loans allow you to repay them from 12 to 60 months.
A personal loan may help you gain financing or pay off your bills but there a few things you should know before you take out a loan.
Banks will use your credit score to help them determine the quantum of loan, interest rate, repayment tenure and whether to offer you a personal loan.
Personal Loan at lower Interest Rate 28 Nov 2022
5 Important Factors Lenders Consider before Approving a Personal Loan Application
(1) Income
You must have a regular income no matter you are salaried or self-employed. Sometimes there is also some minimum income criteria imposed by banks for extending personal loan such as you should earn Rs 3 lakhs per annum to apply for a personal loan. You must be aware of this factor.
(2) Employment
Lenders also pay attention towards the employment status that you have. Whether you are salaried or self-employed? If you are salaried then they will check:
- For how long are you working?
- Who is your employer?
- Since when you are working with your existing employer?
(3) Repayment History
Lenders also check your repayment history of your past as well as your existing loans. They also check if you have made any default or delay in making your payments in time.
(4) Credit Score
For getting your instant Personal Loan approval you should be having credit score should be above 750. Credit score of 750 is considered as a decent credit score and you will easily get the loan because it indicates that you have a very good loan repayment history.
(5) EMI to Income Ratio
Lenders calculate the proportion of your existing loans to your salary during the loan approval process. Your chances of getting loan are less when your total EMIs exceed your monthly salary by 40%.
KYC documents for Personal Loan
- Proof of Identity (Passport / Voters ID card/ Driving License/PAN Card)
- Address Proof (Ration card Tel/ Electricity Bill/ Lease agreement/ Passport)
- Copy of PAN Card
- Latest Passport size photo of the applicant (2 copies)
Income documents for Personal Loan
- Latest salary certificate/ Last 3 months salary slips
- Form 16/Income Tax Returns( last 2 years)
- Last 6 months salary account statement
Risks Associated with Personal Loan
- If you don't repay personal loan on time, the lender bank has the right to sue you and take you to court, as it is not backed by any security.
- Secondly, if you feel to pay off your personal loan too early i.e. before a certain date, there may be huge penalty.
- Thirdly, don't lure by a false advertising and enter into a fake loan agreement.
Benefits of Personal Loan
- Collateral Not Required: Being an unsecured loan, personal loan does not require any kind of security or collateral against loan.
- Can be Availed for any Purpose: Personal loan can be availed for any purpose. There is not need to disclose the reason to avail the loan and also the usage of funds.
- Hassle Free Loan Approval Process: Loan is approved very fast and also disbursed within 24 to 72 hours. Some of the people also get a pre-approval of personal loan upto some specific amount through SMS.
- Competitive Rate of Interest: As this loan is very demanding and popular among the borrowers, there are many banks and NBFCs which are offering this loan at very low interest rate and with negotiable terms.
- Negotiable Interest Rates: Interest rate charges vary from customer to customer and bank to bank. Applicants having good CIBIL score (above 750) and a regular income may negotiate on interest rate and other terms with the lenders.
- Flexible Tenure: You can decide the tenure according to your need. You can get the loan repayment tenure ranging from 12 months to 60 months.
- Helps Building Credit Score: Persons who want to build their credit score can avail this loan for short term and repay it properly in time. Then it will help building a good credit score for them.