A personal loan is a type of loan which does not require any collateral or security offered. Also called an “ instant personal loan” It requires minimal documentation. And as stated this loan can be used for any personal use. It may be paid back in form of monthly installments with a stipulated period. These types of loans are offered by banks, credit unions, and even online lenders. You can use these loans to cover expenses such as vacation costs, medical bills, wedding expenses, any repairs, and even unexpected expenses. In some cases, you might be asked to show for what personal purpose and they might restrict you so read terms and conditions properly before accepting it.
Factors to consider while choosing personal loans
- The loan amount and tenure is the most critical factor to be decided on before applying. We must have an idea of how much amount is to be borrowed and it should be in our capacity to repay. Not a single penny should be wasted. This decision should be budget-friendly. Taking loans for longer tenure might keep EMI low but will keep adding interest which might cost you more at end of the day.
- Rate of interest, after deciding on the amount we need to have a clear idea about what rate of interest will be charged on our principal amount and are other options available where we are been offered low rates of interest. A difference even of half a percent will make us suffer.
- Extra charges are levied by lenders as charges of making paperwork, analyzing our collaterals, and many more. It includes stamp duty, cheque bounce charge, photocopy of loan agreement charge, and more. Although these charges can be negotiated but are to be kept in mind while calculating the final amount of EMI.
- A credit score is a major factor to make eligible for personal loans, if this score is not up to the mark then we might not proceed in the process. This score is a 3-digit number ranging from 300 to 900. It gives banks or lenders an idea of the creditworthiness of borrowers. A score above 750 is considered to be ideal for sanction of any kind of loan.
- EMI monthly installments, as we need to repay loans monthly we need to keep a fair idea about how much will it cost us. It is advised to keep it within 40% of our household disposable income.
- Repayment flexibility shows if the lender provides you the facility to repay your loan sooner, and what will it cost you. Having this facility will help you to stay ahead of distress times. However, it’s best to adopt financial discipline.
- Customer service is the backbone of any process. Having good customer service will guide you through the complexities faced by your repayment journey. They also help you to keep track of your loan.
- Reading the fine print is important. These are the things where might become negligent and face several misconceptions. These terms and conditions are to be read again and again until you understand every term.
- The research will show us what interests are offered by everyone and apply to the ones who are giving us the best. But be aware in some cases where interest loans are least it might turn into a nightmare as those sources are not trustworthy.
Comparison of personal loans
Allahabad Bank – It offers us personal loans at an interest rate of around 9.05% to 13%.INR 50,000 is the minimum loan amount. The maximum Loan Amount is 12 times the gross monthly wage for employees earning between INR 15,000 and INR 20,000 per month. Individuals earning more than INR 20,000 must pay 24 times their gross monthly earnings. However, the maximum loan amount will not exceed INR 7.50 lakh.1.22 percent of the total loan amount, with a minimum of INR 1,228.
Andhra Bank – sanctions loan at an interest rate of 8.90% to 13.65%. Salaried – The loan amount is calculated so that after all deductions, including the anticipated EMI, the take-home income is at least 40% of the gross pay.
Non-salaried – 2 times the average yearly income for the previous 3 years as reported on the IRS Form 1040. (ITR)
Bank Of Baroda – offers loans at an interest rate of 10% to 15.60%. For residents of metros and urban areas, up to INR 10,00,000 is available. For persons residing in semi-urban and rural areas, up to INR 5,00,000 is available. The processing cost is 2% of the loan amount, with a minimum of INR 1,000 and a maximum of INR 10,000, respectively. In addition, the charge will include any applicable GST.
Central Bank Of India – grants loans at an interest rate of 9.85% to 10.05%. 20 occasions of profit, subject to a maximum of INR 10,000,000. The minimum net takes domestic profits must now not be less than 40% of gross earnings after deductions, which includes the proposed EMI.
HDFC bank – offers loans on an interest rate of 9.99% to 14%. There is no upper limit. The loan amount is determined by your income, credit score, and payback capabilities. NIL-2.50 percent of the loan amount plus applicable GST is the processing charge.
How To Apply?
Due to the modernization of technology getting a personal loan has become easier than ever before. We can enquire about loans even on online portals and banks. After providing them with needed documents and after checking your credit score banks may decide to approve or reject. Due to advancements in technology even before going to banks, we can calculate our EMI estimate using an EMI calculator. It can be done by adding principle loan amount planning to borrow and duration.
Generally, you would need to complete the application and submit it to your lender who would verify it and will decide to approve or deny it. If accepted terms of loans we provided to you and then you can accept or reject it based on your convenience. When accepted, the loan amount is credited to your account directly through deposits. The process of sanctioning these kinds of loans is simplest because in these types of loans you are the security itself. There is no need to verify property papers and other assets sources, the bank has to do a close examination of only you and financial information regarding yourself. Two main elements of these loans are as follows:
- Approval of credit score which must be above 750
- Verification of all the documents required by the lender
Defaulting the personal loan will seriously affect the credit score and you cloud even lose your collateral with secured loans limits. Seeing current trends the interest rates of personal loans in the Indian market in around 10.50% per annum – 24% per annum.