A personal loan, as the name suggests, is a loan that can be used by an individual to satisfy any personal need. You can use it to cover wedding, travel and vacation expenses. It can also be used for medical expenditures.Â Apart from this, a personal loan can be used to consolidate debt at a lower rate of interest than credit cards usually have.
A personal loan is popular for the following reasons:
a). It does not require collateral (it is unsecured)
b). There is no need of a guarantor
c). The documents required are fewer as compared to other loans
d). It can be sanctioned in as little as 24 hours (or as much as 7 working days)
e). You can use it as per your convenience without the fear of being audited or monitored
While these conditions seem almost idealistic, the lending institutes are stringent about the following criteria (which is where you need to be prepared):
a). Your credit history (assessed through your CIBIL TransUnion Score)
b). Annual income
c). Your organisationâ€™s profile
d). The number of years you have worked for
e). Last 3 yearsâ€™ IT return
You can check your personal loan eligibility online and apply. Once your profile is deemed fit, it goes through another round of assessment which is based on the following factors:
a). The lending institution
b). Amount you wish to borrow
c). Tenure (duration within which you want to re-pay the loan)
Documents for personal loan:
Application form duly filled
KYC (Know Your Customer) documents (ID proof, address proof, photograph)
Bank statements, duly signed
Income proof (three yearsâ€™ salary slip/form16/Income Tax Returns/audit report)
Employment proof (details of bonus, appraisal letter, etc.)
Other documents supplementing the above, if required
You can apply online for personal loan and scan and upload the documents required or send a hardcopy.
Why is the rate of interest higher for personal loans?
You can be granted a personal loan in India ranging from Rs. 10,000 â€“ 30,00,000/-, which makes it perfect for satisfying small or large monetary requirements. With tenure of minimum one to maximum five years, you can get sufficient time to manage your finances for loan repayment. However, if you compare personal loan interest rates in India, they are a tad bit higher than for other types of loans. The reason for this is that the lending institute offers personal loan without a collateral and guarantor and the high rate of interest on personal loan is the cost of the risk undertaken by them to grant you the loan.
Second thoughts about applying for personal loan
A few financial institutes offer a â€˜cooling-offâ€™ period to the borrowers of personal loan. It simply means that if you have second thoughts about applying for the loan, you can withdraw the loan application within 14 days of the original application. Once cancelled, a notice of withdrawal needs to be given in writing or verbally to the lending institute. Post this, you are granted up to 30 days to repay the capital and any interest accrued between taking the loan and its repayment.