A personal loan is an unsecured loan, thus, you do not have to provide collateral to the fund-provider. It is a multi-purpose loan as it can be used to fund any expense. Some of the reasons for, which people take this loan are; medical treatment, home repair, travel trip, small education expenses, debt consolidation, and similar financial emergencies when faced with a cash crunch.
If you do timely repayments, this loan product can help in boosting your credit score. The loan can be taken for a bank, private finance company, NBFC, and a similar credit-offering institution. Personal loans are tailor-made for salaried individuals. Being a versatile product, it is preferred by many. However, not everyone is aware about the facts of personal loans.
Below given are some of the frequently asked questions about this loan facility that every probable borrower must know.
- What is the loan amount limit?
Each financial institution has its own norm about the loan amount. The minimum loan amount that you can borrow, usually is Rs. 1 lakh, and up to Rs. 20 lakhs or Rs. 25 lakhs. Some banks and NBFCs offer loan amount as low as Rs. 15,000 as well. Do remember that many factors influence the loan such as your age, income, repayment capacity, existing liabilities, and credit score.
- What is the loan tenure?
The loan tenure is between 1 year and 5 years. A few fund-providers can offer tenure of up to 6 years as well.
- Is this loan only available for salaried individuals?
Personal loans are primarily for salaried individuals only. However, some companies may extend this facility to self-employed professionals such as doctors, Chartered Accountants, lawyers, architects, and many more.
- What are the impacts of defaulting on a personal loan?
If you default on your loan, your credit score will take a hit. Defaults on a loan lowers credit score and makes it difficult to avail a new loan. Also, the fund-provider may permanently blacklist you from availing a loan from it, in the future. Always remember that any loan is a responsibility and must be repaid in time to avoid any untoward consequences.
- How long does it take to disburse the loan?
One of the reasons why personal loans are said to be suitable for urgent expenses, is the turnaround time. You can expect to receive loan approval within 24 hours to 48 hours, and an instant disbursal to your bank account, thereafter.
- What are the essential documents required?
You have to submit the following documents when applying for a personal loan:
• Any one of the valid photo ID proof and address proof such as Aadhar card, Passport, Driving Licence, Voter ID card, etc.
• PAN card is mandatory.
• Duly filled and signed loan application form.
• Bank statement of the last 6 months.
• Salary slips of the last 6 months.
• Proof of recent Income Tax return or Form 16.
- How much is the interest rate?
The personal loan interest rates will differ from a bank to another. It can be anywhere between 10.75% and 24%, depending on your repayment capacity, credit score, income, age, employment history, and other factors.
- Is there an applicable processing fee?
A processing fee is a fee charged to process a loan. You have to pay it when the loan amount gets disbursed. Processing fee can be up to 2% of the principal loan amount. It will be a fixed amount and can differ from an institution to another. Most banks and finance companies are transparent about these fees and make an upfront statement about it in their loan offer.
- Is there a prepayment charge applicable?
You can certainly prepay the loan before its maturity but some financial institutions may levy a prepayment charge. This charge will depend on the bank’s/company’s policy. It is usually up to 5% of the outstanding loan amount. Thus, always check the prepayment charges before finalizing a loan deal.
- Is there a top-up and balance transfer facility available?
Yes, you can apply for a top-up personal loan. A top-up loan, as the name suggests, is an additional loan taken over an existing loan scheme. This way, you do not have to apply for a new loan altogether, but avail extra credit on the existing loan deal itself.
You can even transfer your loan to another bank from the existing provider (balance transfer). Usually people choose a balance transfer because the new provider charges a lower interest rate or offers better services, terms, and facilities on the loan.
If you wish to avail a personal loan then do go through the above-given information to best understand this loan type, and take an informed decision.