Personal Loan
Know All About Personal Loans
What is a Personal Loan?
A Personal Loan is an unsecured loan which offers funds for meeting different types of financial needs. You don't have to pledge any assets or collateral security to secure the loan. A Personal Loan is granted based on your eligibility qualifications.
You can take a loan and repay it over a fixed tenure of your choosing. The interest rates are affordable so that you can meet your financial needs without burning a hole in your pocket.
Personal Loan example
Consider this scenario: You're faced with an unexpected medical expense. A Personal Loan allows you to quickly access funds, providing the necessary financial support without the stress of arranging collateral.
How does a Personal Loan work?
The working of a Personal Loan is simple. Take a look:
- You have to check the eligibility parameters for the loan before applying.
- If you are eligible, you can apply online or offline by providing your personal details and submitting the relevant documents.
- The bank processes your loan application and verifies the documents.
- The bank also checks your repayment capacity and creditworthiness to ensure timely repayments.
- After a successful verification, the loan is sanctioned, and the funds are credited to your bank account.
- You can use the funds for any type of financial need.
- The loan is repaid through EMIs, which contain both the principal and interest.
- You can calculate the expected EMIs using the Personal Loan EMI Calculator.
- You have to pay the EMIs over the chosen loan tenure to repay the debt.
Different Types Of Personal Loans You Can Apply For
- Secured Personal Loans: Require collateral but typically have lower interest rates
- Unsecured Personal Loans: More common, and do not require collateral
- Fixed-Rate Loans: Have a constant interest rate throughout the tenure
- Variable-Rate Loans: Interest rates fluctuate based on market conditions
What are the benefits of availing a Personal Loan?
- Quick disbursal: Often, Personal Loans are disbursed swiftly, making them ideal for urgent financial needs.
- No collateral required: Being unsecured, they don’t demand any asset as collateral.
- Flexibility of use: You can use Personal Loans for any purpose, from debt consolidation to funding a vacation.
- Competitive interest rates: Personal loan interest rates are competitive, especially if you have a good credit history.
What is the maximum amount that you can borrow?
When considering a Personal Loan, one of the key questions is the maximum amount you can borrow. This varies significantly across lenders and is primarily influenced by your income, credit score, employment history, and, sometimes, the purpose of the loan. Generally, lenders in India offer Personal Loans ranging from a modest ₹50,000 to a substantial ₹30-40 lakh. Axis Bank, for instance, offers a maximum of up to Rs 25 lakh for 24x7 Digital Personal Loans that you can avail instantly via an end-to-end digital process, and up to Rs 40 lakh if you apply for Personal Loan physically.
However, the actual amount you're eligible for is determined based on your ability to repay the loan. Lenders assess this by looking at your monthly income, existing debts, and other financial obligations. The higher your income and credit score, the more likely you are to receive a higher loan amount. It's important to remember that while it might be tempting to go for the maximum amount, you should borrow only as much as you need and can comfortably repay.
Eligibility criteria to qualify for a Personal Loan
As stated earlier, there are specified eligibility criteria to qualify for a Personal Loan. These are as follows:
- Age: 21 to 60 years
- Income: A minimum monthly income of ₹15,000 is required
- Credit score: 700+ is ideal. However, there are loan options for a lower score.
- Occupation: Salaried or self-employed
Documents needed for a Personal Loan application
You have to submit a set of documents when applying for a Personal Loan. The exact requirement of documents depends on the lender. However, some of the common documents include:
- Identity proof : Aadhaar card, voter's ID card, passport, etc.
- Age proof : Aadhaar card, passport, voter's ID card, birth certificate, etc.
- Address proof: Utility bills, rent agreement, property sale deed, Aadhaar card, voter's ID card, etc.
- Bank statement: Last 3-6 months
- Income proof: salary slips or income tax returns of the last few years
- KYC documents: PAN card, bank statement, etc.
What is a Personal Loan used for?
A Personal Loan can be used for different financial needs, such as:
- Debt consolidation: If you have multiple debts and you want to consolidate them into one, you can take a Personal Loan.
- Medical emergencies: The loan can help you pay for hospital bills and treatment costs in the case of medical emergencies.
- Wedding: A Personal Loan can pay for the different types of expenses incurred while planning a wedding.
- Travel: The loan can give you the funds to plan a domestic or international trip and pay for tickets, accommodation, and more.
- Home renovation: If you want to renovate or upgrade your home, a Personal Loan can give you quick funding for the same.
- Higher education: A Personal Loan can also fund higher education both in India and abroad.
Also Read: Choosing the right Personal Loan for your needs
What are the interest rates and tenure fo Personal Loan?
The interest rate and tenure of a Personal Loan are pivotal factors that determine not only your monthly EMI but also the overall cost of the loan.
Interest rates: These rates can vary widely depending on the lender, your credit profile, and market conditions. In India, Personal Loan interest rates typically range from around 10% to 24% per annum. A good credit score can fetch you a lower interest rate, leading to significant savings over the loan period.
Tenure: The tenure of a Personal Loan is another critical aspect. Most lenders offer flexible repayment periods ranging from 1 to 5 years, and in some cases, it can extend up to 7 years. A longer tenure means lower EMIs but a higher total interest outlay, while a shorter tenure increases the EMI but decreases the total interest paid.
Additional factors: Besides interest rates and tenure, other factors such as processing fees, prepayment charges, and late payment penalties also play a role. It's crucial to understand these elements, as they can affect the total cost of your loan.
Also Read: How can you get a Personal Loan online with 6 easy steps?
Are there any charges for foreclosing a Personal Loan?
Foreclosing means paying off the loan before the scheduled tenure. While it is allowed, foreclosure might incur a charge. Lenders usually charge about 2% to 5% of the outstanding principal on foreclosures.
Key factors to consider before taking a Personal Loan
When taking a Personal Loan, there are various factors that you should consider to get the right deal:
- Compare the Personal Loan interest rate across lenders to find the lowest option.
- Borrow only what you need.
- Choose a repayment tenure that gives you the most affordable EMIs.
- Compare the processing fees, too, and choose a loan that has a lower fee structure.
- Check the eligibility parameters before applying and ensure that you qualify for the loan.
- Check the clauses associated with prepayment and foreclosure.
- Maintain a good credit score to get a Personal Loan at lower interest rates and on favourable terms.
How to choose the right Personal Loan for your needs
Here are some ways through which you can choose the right Personal Loan for your needs:
- Compare and find a Personal Loan at the lowest interest rates.
- Check the tenure and choose a period that offers affordable EMIs without too much interest outgo.
- Check the repayment flexibility offered by lenders. Choose a flexible repayment option for pocket-friendly repayments.
- Find out the maximum loan amount you can get and borrow what you need.
Conclusion
Understanding the intricacies of Personal Loans is crucial for your financial well-being. While weighing your choices, consider the Axis Bank Personal Loan for its competitive rates, flexible terms, and customer-centric approach. This choice could offer the balance and support needed for your unique financial journey, ensuring a responsible and beneficial borrowing experience.
FAQs
What is the purpose of a personal loan?
A Personal Loan is meant to fulfil your financial needs without putting a dent in your savings or causing a financial strain. Since the loan is a multipurpose financial solution, you can use it for meeting any need, like weddings, medical emergencies, travel, home renovations, and more.
How much EMI for 1 lakh?
The EMI would depend on the loan tenure and the applicable interest rate.
How much salary is required for a personal loan?
The minimum salary required for a Personal Loan depends on the lender. Axis Bank offers Personal Loans at a minimum salary of ₹15,000 for existing customers and ₹25,000 for new customers.
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