Personal Loan Overview

Personal Loans are usually of two types i.e. secured personal loan which is secured against the mortgage of securities, high surrender value insurance policies, gold, etc. and another is unsecured personal loan which does not require you to mortgage anything.

Unsecured personal loans do not require you to provide any collateral security, though some PSU banks may insist on a third party guarantee. Unsecured personal loan can be taken to finance any short-term requirement like oversea trips, marriage, medical emergencies, etc. The only condition is that the persona loan should not be used for speculative purposes.

Personal loan is a simple hassle free process of funding your personal requirement with minimal documentation and within quick time. In India, Banks as well as Non-Banking Financial Corporation (NBFC) finance personal loan.

Purpose of Personal Loan

Personal Loan is commonly known as all-purpose loan it can be uses for fulfilling various legitimate personal needs that includes:-

Higher education for self, children, etc.

Marriage in the family

Dream vacation

Festival expenses

Medical emergencies

Furnishing or renovation of house

Purchase of high end consumer goods

Purchasing of high end lifestyle products

Etc.

Personal Loan Eligibility

Being unsecured in nature, lenders have stricter norms regarding eligibility and sanctioning of personal loan. But some of the basic eligibility criteria the applicant must fulfill are:

Should be a Resident Indian

Should be minimum 21 years of age

Should be Salaried or Self Employed Professional / Non professional

Should be a permanent employee of the organization, if salaried

Should have continuous source of income to service the loan

Rate of Interest and Loan Amount

The rate of interest is primarily dependent on:-

Company for which the prospective borrower is working

Credit history of the borrower.

The bank may reject the personal loan if the borrower has defaulted on his past dues on any credit card or loans.

The maximum loan amount is dependent on prospective borrower’s income and his ability to service the Home Loan Rates and can go up as high as Rs. 30 lakhs. The final loan amount is dependent on host of other factors like regular fixed expenses, existing loan repayment, etc.

Emi and Repayment

Most lenders will require borrower to repay the loan within a period of 12 to 60 months maximum. The borrower can repay the loan by paying regular monthly installments also known as Emi or Equated Monthly installments.

Fees and Charges

Processing fees varies from lender to lender and will be in the range of 0.5% to 3% (excl. service tax) of loan amount. Generally the processing fee for personal loan is not taken upfront, but is deducted from the loan amount disbursed by the lender.

If the personal loan is availed on floating rate of interest the borrower need not pay penalty for early closure of loan but may end up paying penalty if the loan is on fixed rate of interest.

Documents Checklist for Personal Loan

To start the loan process, the lender will require:-

Application Form with photograph

KYC Documents –

Proof of Identity – PAN / Passport / Driver’s License / Voter ID card / Aadhaar card, etc.) and

Proof of Address – Passport / Aadhaar card / Landline Telephone Bill / Electricity Bill, Ration Card, etc.)

A/c. Statement –

Statement of bank account for the last six months

If any previous loan, then Loan A/c. Statement for last 1 year

Income Documents

[Source: http://www.apnapaisa.com/personal-loan-overview/]