Different types of loans are offered by banks for different types of needs, such as Home Loan, Business Loan, Education Loan, and so on. However, for personal needs, Personal Loan is offered by the banks.
Any eligible person can get a Personal Loan, and it can also be granted for personal reasons, whether it is for medical treatment, repairing a house, buying a car, paying for children’s fees, or even buying an air conditioner or a fridge. The good thing about personal loans is that they are easy to get and you can get them for a short period of time.
What Is Personal Loan?
A Personal Loan is almost like a regular loan, but it is a little different from a typical loan. As the name suggests, it is given for personal needs, and it can be used for any private purpose such as for a wedding, starting a business, getting medical treatment, going on a vacation, paying EMIs, purchasing mobiles and computers, and so on.
Unlike Home Loans or Car Loans, a Personal Loan is not secured, and you don’t have to keep any asset as collateral.
You can get a personal loan ranging from INR 50,000 to INR 50 lakh. Different banks offer different offers for personal loans, and each bank charges different interest rates on personal loans. Currently, interest rates on personal loans from different banks range from 15% to 30%.
Personal Loan is a type of unsecured loan and is given based on various factors such as income, credit history, repayment capacity, etc.
Personal Loan: The interest rate on a personal loan is usually very high, and if you default on its instalments, it can adversely affect your credit score, which can create difficulties for you in obtaining a loan or credit card in the future. Therefore, wherever possible, one should avoid taking a personal loan.
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Benefits of Personal Loan
- Personal loan is a way to eliminate uncertainty for an individual or to fulfill sudden financial needs. If anyone has an urgent need for money, they can apply for a personal loan.
- Most banks provide a repayment period of 1-5 years for personal loans, making it easy for anyone to repay the loan.
- The biggest advantage of taking a personal loan is that there is no need to keep any asset as collateral or provide a guarantee from a third party, making it easily obtainable.
- In any bank, the interest rate for a personal loan is lower compared to loan sharks, moneylenders, and other individuals. Where a moneylender might charge 40-50% interest, a bank can provide a personal loan easily at 15-30% interest.
- Salaried individuals can easily obtain personal loans.
- There is no need to explain the reason for taking a personal loan and the documentation required is minimal, making it easier to obtain a loan in a short amount of time.
Loss of Personal Loan
- The biggest drawback of a personal loan is its interest rate. The interest rate on a personal loan is quite high compared to other loans such as home loans, car loans, and gold loans. Therefore, one should only take a personal loan when there are no other options available.
- Due to the lack of collateral in a personal loan, it is very difficult for people who do not have a steady source of income or who have any shortcomings in their documents to get this loan.
- Personal loans are granted based on a person’s credit score. If someone has a poor credit score, then the bank will not grant them a loan.
How to Apply for Personal Loan
Who is Eligible to Apply for a Personal Loan?
- Although the eligibility criteria for giving a Personal Loan varies from bank to bank, it is mainly based on the applicant’s income, source of income, age, credit score, and repayment capacity.
- Anyone with a certain source of income can apply for a Personal Loan. In most cases, banks easily provide personal loans to those who are employed, meaning those who have a certain income.
- Banks not only have to give loans but also have to recover them, so they prefer to give Personal Loans to those who have a certain income or other means of income available. Banks do not want the loan they have given to sink into the debtor’s account.
Documents Required For Personal Loan
When taking a personal loan, the bank only grants you the loan based on the documents provided. Without the required documents, no bank can grant you a loan. Therefore, before taking a loan, you generally need the following documents:
Income proof, PAN card,
income tax returns ID proof,
- Aadhar card,
- ration card
- Passport size photo
- Bank account statement
- and other bank details
If you have a business, the business balance sheet Some of these documents should be verified by members of recognized institutions, such as the balance sheet of the business, which should be verified by a CA (Chartered Accountant) to expedite the loan process from the bank.
Important Points to keep in mind when taking a Personal Loan are:
- Interest Rates: Personal loans usually have higher interest rates compared to other types of loans, so it is important to compare the interest rates offered by different lenders before applying for a loan.
- Loan Amount: It is important to assess your financial situation and determine the amount of loan that you need. Borrowing more than what you can afford to repay can lead to financial difficulties later on.
- Loan Tenure: Personal loans usually have a fixed tenure, and it is important to choose a tenure that is comfortable for you to repay. Longer tenures result in lower EMI payments, but the total interest paid over the loan tenure will be higher.
- Processing Fees: Personal loans come with processing fees, and it is important to factor in these fees while calculating the total cost of the loan.
- Prepayment Charges: If you plan to repay the loan before the end of the tenure, check for prepayment charges. Some lenders charge a fee for prepaying the loan.
- Credit Score: A good credit score is important for getting a loan at a lower interest rate. Check your credit score before applying for a loan and take steps to improve it if necessary.
- Documentation: Ensure that you have all the necessary documents in place before applying for a loan. Missing or incorrect documents can lead to delays or rejection of the loan application.
FAQs | How to Apply For Personal Loan In 2023
What is the best way to get a personal loan in 2023?
The best way to get a personal loan in 2023 is to apply online. There are many companies that offer loans online.
How much Personal Loan can be obtained?
Personal loans can be obtained from Rs. 20,000 up to Rs. 50 lakhs.
What is the cheapest Personal Loan offered by a bank?
Although the interest rates on Personal Loans are usually high, you can get a slightly cheaper Personal Loan from these banks compared to other banks:
- Punjab National Bank
- IDBI Bank
- Union Bank of India
- Indian Bank Bank of Maharashtra