A Personal Loan is an amount given by a lender to an individual to use for personal benefit. The borrower needs to pay this off within a specified time. Since these loans are unsecured ones, the lender considers them risky. Personal Loans also require minimal documentation. That is why they are known as signature loans as well.

If you need money right away, a Personal Loan may be your best bet. Well-known financial lenders place a priority on processing Personal Loan applications quickly. Besides, you can use the money to meet any personal demand. This could be a medical emergency, for example. Or you might need to pay for immediate repairs of your house.

Eligibility Criteria For Personal Loans

Both banks and non-banking finance companies (NBFCs) offer Personal Loans to customers. The lender tries to ensure that you are creditworthy. It will check your credit score and see whether you have defaulted on repaying loans in the past. It is advisable that you procure your CIBIL Score before approaching the lender.

Lenders have different criteria for extending the loans. For example, a person living in Mumbai or Delhi would need to have a higher income level than someone in Dehradun. This is because the cost of living is higher in a big city. So, the lender would look at the effective value of your earnings as well. This would help them gauge your repayment ability.

Your age also affects your eligibility. Certain lenders offer Personal Loans only to people in specific age groups. This age range may vary from one lender to another. If you have passed retirement age, for example, getting a Personal Loan may be difficult. But this simply means that you will have to look for specialized loans for pensioners.

The tenure for a Personal Loan ranges between 12 and 60 months. Lenders let you choose the tenure as per your wish. Then repay the loan in equated monthly installments (EMIs). You can get loans for amount up to Rs 25 Lakh or even more, depending on your eligibility.

Loan approval happens speedily. Most banks and NBFCs sanction loans within 72 hours. But the approval time could range from an hour or two-to-seven business days. The time taken for loan sanction varies from one lender to another. It also depends on the particulars of your application, including the loan amount.

Documents Required

  • Application form and two copies of a recent photograph
  • Copy of passport, voter ID, driving license, PAN card, or Aadhaar card
  • Utility bill (not more than three months old) or passport
  • Property documents, maintenance bill, or electricity bill
  • Bank statement for the last three months
  • Salary slip for the last three months or a current salary certificate with the latest Form 16

Interest Rates on Personal Loans

Personal Loans usually attract a higher interest rate. This is because lenders consider them to be risky. Personal Loan interest rates could vary from lender to lender. Typically, they start from about 11.49% and go up to 24%. Some lenders may even charge more. So, it makes sense to shop around before finalizing a deal.

Types of Personal Loans

  • Wedding Loans: A wedding is a life event. It requires intense planning and the expenses can go through the roof. A wedding loan will take care of the costs—right from jewelery shopping to paying off the caterer.
  • Home Renovation Loans: The home is where your heart is, goes the saying. But it can often be an expensive proposition to renovate your home. These loans are especially tailor-made for such needs.
  • Travel Loan: Holidaying is becoming expensive by the day. As new horizons beckon, the wanderlust in you would love to go places. Personal Loans for travel are now part of the portfolio of most lenders.
  • Debt Consolidation Loans: A debt consolidation loan helps you to combine many different liabilities under one umbrella. Consolidation makes it easier for you to manage your liabilities. Instead of many EMIs, you pay just one. Besides, you can avail reduced interest rates as well.
  • Higher Education Loans: Education is costly and not easily available to everyone. Therefore, education loans are very important. Almost all banks in India offer education loans and the demand has remained steady.

These represent just a few types of Personal Loans. And there are many more. A visit to the website or office of any lender will show you the different types of loans they offer. Remember, the names could be different but the asset class remains the same to a lender—namely, Personal Loan.

Low Rejection Rate

Personal Loans have the lowest rejection rate in the industry. This is a major advantage for people who need funds urgently. For instance, say you have a default history and a low CIBIL score. You can still qualify for a Personal Loan. The disclaimer in such cases will be that you will have to pay higher interest to avail the loan. That is because you are already in a risky category from the lender’s point of view.

Read Blog : CIBIL Score Improvement Tips: Why This Matters

Busting The Myths

Myths and half-truths have surrounded Personal Loans for long. Here are some of the common ones:

Only For The Salaried Class: A common misconception is that the Personal Loan is only for the salaried class. Nothing could be further from the truth. A number of banks and NBFCs extend Personal Loans to the self-employed as well. However, the eligibility criteria may be different for such borrowers.

No Tax Benefits: This is another common, but mistaken, grouse against Personal Loans. Under Section 24(b) of the Income Tax Act, you can claim tax benefits for a Personal Loan.

Read Blog : How Personal Loan can Provide you Tax Benefits?

  • Expenditure on a residence: Say, you take a Personal Loan to buy a property or home for residential purposes. Or you might use the money to build a home. Perhaps you use the loan to carry out renovations or repairs in your home. In all these cases, you can claim tax benefits on the interest paid. The deduction is capped at Rs. 2 lakh for a self-occupied house. There is no upper limit for a property that you rent out.
  • Purchase of asset: You could use the Personal Loan to buy assets. These could include shares or jewellery, for example. The deduction would apply when you sell the asset. The interest paid on the loan would add to the cost of acquisition. This would reduce the capital gains and the tax payable on it.
  • Business expenses: When filing your returns, you can claim benefits on the interest paid on the loan. The interest paid would qualify as a business expense. This would bring down your taxable income.

Exorbitant Interest Rates: The truth is the rate of interest for a Personal Loan typically ranges from 11.49–24%. This may seem high. But compare the rate with credit cards where interest rates can be much higher. These days, it is easy to get a Personal Loan. There is no need to pledge any collateral either. So, if you need cash on short notice, it is always better to opt for a Personal Loan.

The bottom line

A Personal Loan can come in handy whenever you need money urgently. They are easy to get but expensive to pay. Borrowers stand to benefit with these quick and easy loans. The interest rate is manageable and you need to submit only a few documents. Besides, you do not have to use the loan amount in any one specific way. While the merits are many, bear in mind that the penalties are heavy if not repaid in time.

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