As kids, we often used to run out of our pocket money and then with bated breath gathered the courage to approach mom or dad for a little more. Personal loans are somewhat similar. You borrow money from a lender and repay the same with a little extra in the form of interest. Be it marriage expenses, vacation, home renovation, health expenses, or paying for your child’s education, there are several ways in which a personal loan can be used.
Almost every bank and NBFC now offers personal loan. With digitalization, every lender is now online and a few clicks are all you need to get a loan. While getting a personal loan is now easier than ever, you should do so with utmost caution. We have created a list of 5 important questions that you should definitely ask when applying for a personal loan.
Well, it depends on whether or not you are eligible for one. Lenders have eligibility criteria on the basis of which they approve loan applications. Some important considerations include your income, job stability, and CIBIL score. If you have a good job with a decent income and have always repaid your past loans on time, you certainly can get a personal loan.
You’ll also need the right documents to go with your loan application. The document requirements vary on the basis of whether you are a salaried or self-employed professional.
For Salaried Applicants-
Latest tax returns or Form 16
For Self-Employed Applicants-
Ownership proof if applicable
Business existence proof
Latest tax returns or Form 16
Apart from these, the lenders can also ask for other documents if required.
What will be the interest charged on the loan?
Lenders in India offer personal loan at different interest rates. As personal loans are unsecured loans, the interest in them is generally higher than other types of loans. When applying, remember that many lenders offer personal loan at a fixed interest rate while others offer them at a reducing balance interest rate. There are others who offer both the options. With fixed interest, the interest remains the same throughout the loan tenure and with reducing balance, the interest reduces as the principal amount reduces.
How much loan can I get?
That too depends on your eligibility. Lenders in India offer personal loans of up to Rs. 10 lakhs for a duration of up to 5 years. Some even offer more than this. However, it’s your eligibility that will determine how many loans you can get. If you and your colleague are both applying for a personal loan from the same lender, there is a possibility that different amounts will be sanctioned for both. Normally, the lender sanctions an amount whose EMI is not more than 25%-30% of your monthly salary.
Are there other charges involved?
Yes, lenders charge a processing fee of 0.5%-2.5% of the loan amount to process your loan application. In most cases, this fee is deducted from the approved loan amount. Apart from this, there can be late payment charges, cheque bounce charges, prepayment charges, and foreclosure charges. Ensure that you compare these additional charges between multiple lenders to select the best.
How can I improve my eligibility for a personal loan?
In most of the cases, the loan applications are rejected due to bad credit score. If your application is rejected for the same reason, try to improve your credit score. This can be done by repaying your existing loans and credit card bills. It is also beneficial to keep the number of loan applications to a minimum as it displays your credit hungry behavior which is a major deterrent for the lenders.
A personal loan can be an excellent way to keep up with your expenses especially at the time of emergencies. But while getting a personal loan is now very easy if you are eligible, just like any other financial product, it is very important to be careful at every step to avoid any financial losses or get yourself into any legal troubles.