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July 16, 2024
As economies and corporate culture continue to grow, incomes have increased. This has amplified demand for infrastructure facilities due to improved opportunities for salaried and self-employed individuals. Governments, private banks, and financial institutions are offering credit facilities, including secured and unsecured credit to support this development.
Dealing with unexpected expenses can be difficult, whether related to lifestyle, overspending on holidays, or expenses for weddings and family celebrations that exceed the budget. In the past, people often borrowed money from a well-off friend or relative when they needed extra funds beyond their monthly payments or in case of an emergency. A Personal Loan fills this vacuum as families become nuclear and relationships impersonal.
A Personal Loan is unsecured funding provided for a short term and intended for personal use. The loan is granted based on the applicant’s profile and supporting documents.
Initially, Banks gave restricted amounts as Personal Loans, and usually, the customer had a relationship with the bank. Funds for Personal Loans were approved at the bank’s discretion, based on the available customer information.
Over the years, the landscape of a Personal Loan has significantly transformed. It is now a structured product easily accessible to salaried and self-employed individuals for their specific needs. The updated Banking systems, digital innovations, and customer credit details recorded by CIBIL now enable lenders to check the background and profile of customers and prioritise their lending segments.
Digitalisation has further enhanced the process. Now, an applicant can Apply for an Online Personal Loan with convenience. Documents are uploaded online, and the funds are disbursed electronically with efficiency and speed as an instant personal loan.
A robust demand has encouraged banks such as HDFC Bank, ICICI Bank, AXIS Bank, and YES Bank to process Personal Loans as a primary product. Registered NBFCs and online applications also actively market Personal loans with a structured product and policy, prominent.
The basis for a Personal Loan is the customer’s intention and ability to repay the loan promptly. Personal Loans are unsecured funding therefore, banks want to consider specific profiles and employment aspects when issuing a loan. Primary factors for the calculation of Personal Loan Eligibility for loan amount include the following:
Income: The applicant should draw a regular monthly income credited to the bank salary account. The minimum salary requirement to receive a Personal Loan is ₹ 25k and above.
Employment: The applicant’s employer is an essential factor in determining Eligibility for a Personal Loan. The reasoning is that working for a reputable company with sound financial stability and growth potential ensures a consistent income. A borrower who receives their salary on time is less likely to default on their loan EMIs. Banks have compiled a list of approved companies and prefer to fund applicants working in organisations featured in the approved list of companies.
Residence Details: The applicant’s living conditions reveal much about the personal profile. A customer living with a family in a family or self-owned home indicates a secure income. Suppose the applicant is residing on rented premises. In that case, the documented proof of a permanent address will help instil confidence in the lender that the customer is easily reachable in case of a delay in repayment.
Credit History: Individuals who manage their finances well and pay their dues on time will easily access credit when needed. The Credit Bureau of India Ltd (CIBIL) maintains records of all individuals’ financial transactions, including their loan history and repayment track record. Lenders typically conduct a CIBIL check to verify an applicant’s repayment history before approving a Loan or Credit Card to ensure that the applicant has a strong credit record. A CIBIL Score of 700 points or higher is considered an eligible score for obtaining further credit.
Stability and Continuity: “Financial institutions seek out customers with a stable background and the ability to comfortably repay borrowed funds. In this context, an applicant who has been consistently employed by the same company or has switched jobs without a gap will be viewed positively. Conversely, individuals with less job experience and prolonged periods of unemployment are considered high risk. Likewise, customers who have resided in the same area for an extended period are less likely to default on payments than single individuals who frequently change their addresses.”
Age: The minimum age required to apply for a personal loan is 23. An applicant can repay the loan until the age of 62. If proof of retirement age is provided, a further extension until age 65 is granted.
Education: To apply for a personal loan, an applicant must have a graduate degree. Further degree holders and professionals such as doctors and dentists are treated as a particular category and offered enhanced terms and conditions.
Loan Amount: Prominent Banks such as HDFC Bank and ICICI Bank grant funds from ₹ 1 lakh to 40 lakhs as a personal loan. Banks and NBFCs have individual policies regarding the loan amount issued to the applicant, and loan amounts are issued according to the applicant’s ability to pay the EMI after the monthly expenses are met.
Tenure: The tenure or term for repayment of a Personal loan is 12 to 72 months. The tenure is allotted according to the applicant’s ability to pay the monthly instalment. The tenure allotted at the time of disbursal of the loan remains fixed.
The interest rate for a personal loan is reasonable, considering it is unsecured. High-income customers borrowing large sums are offered discounts, while a lesser loan amount incurs a higher interest rate.
Interest Rate: The personal loan interest rate ranges from 10.75% to 18%. It is applied at a monthly reducing balance and remains fixed for the entire tenure.
Processing Fees: The processing fee is a one-time cost the lender pays. This amount is deducted from the loan amount disbursed as file charges. Lenders Levy a processing charge according to the individual policy; the main factors influencing the processing fees are the approved loan amount and the customer’s income.
Other charges include prepayment charges and the cost of repaying the loan before the expiry of the tenure. Banks will charge a nominal fee for other requested documentation.
It is advisable to check if you are comfortable paying the EMI before applying our EMI Calculator, which also serves as a Personal Loan Eligibility Calculator, will help you arrive at a convenient EMI based on the above inputs.
To process a Personal Loan, minimal readily available documentation must be submitted. Applicants can Apply for Instant Personal Loans Online or give hard copies of documents. Banks require income details to determine monthly earnings and proof of customer identity and address as per the KYC norms mandated by the RBI (Reserve Bank of India)
The norm is a salary slip that indicates the monthly remuneration and a corresponding credit reflected in the Bank statement for three consecutive months.
Per the KYC norms, a customer must submit proof of identity for all credit transactions, such as a PAN Card confirming the customer’s details and serving as a signature proof.
The Aadhaar card is a universally approved document that confirms the customer’s identity and address. Alternate documents that serve as proof of address include a passport, driving license, voter ID, and any government-approved document.
The Bank will verify the residence and office to check customer availability. With the introduction of Video KYC, the process is now completed digitally.
Once the Personal Loan is sanctioned, the customer must ensure enough funds are in the account to clear the EMI before the due date. Not only will penalties be charged for the number of days the EMI remains unpaid, but the credit score will also be affected. Due to the unsecured nature of a Personal Loan, it is the easiest way to increase your credit score and vice versa. This results in the inability to get further credit when required in the future.
A Personal Loan can be your friend in need, providing you with the comfort and security of accessing funds instantly when required and at reasonable costs.
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