Of the various financial products available, personal loans are the most popular and versatile credit options in India. As of March 2021, the total personal loan book in the country was valued at Rs.644.6 lakh crore.
This tremendous growth of short-term unsecured credit has been primarily driven by NBFCs, who offer exclusive features at attractive rates. To enjoy these benefits of financing, you must know the ins and outs of what is a personal loan.
Understanding personal loans in India
In layman’s terms, a personal loan is a fund a customer can borrow from lenders but needs to repay after a pre-determined tenor. It is an unsecured loan where no asset is needed as collateral. Lenders sanction the fund against some eligibility criteria. Once approved, the entire amount gets credited to the borrower’s account, which he/she can utilize immediately without any constraints.
There are multiple uses of a small personal loan, such as:
- Wedding expenses or other occasions
- Child’s higher education
- Foreign travel
- Debt consolidation
- Home renovation
- Purchase home décor items, gadgets or other essentials
- Healthcare and medical emergency, etc.
How to repay the personal loan?
The concept of loan repayment is different from other forms of credit like credit cards. Here, borrowers need to pay off the loan in manageable EMIs or Equated Monthly Instalments over their selected tenor. These EMIs comprise a certain percentage of the outstanding principal and the interest payable. This way, the loan repayment completes by the tenor’s end.
One of the key advantages of taking personal loans is that the EMI facility reduces the debt burden and allows borrowers to repay comfortably without stressing their pockets.
How to avert repayment failure?
As you want to know what is a personal loan, here’s a fact to note. It is possible to pile up debts and default on repayment if the loan is managed irresponsibly. The best way to avert this is by planning well and making an informed decision about this major financial commitment.
- Evaluate your monetary strength as well as repayment capability.
- Apply for the amount you require and qualify for. Seeking a higher or lesser amount won’t fulfill your purpose and trap you in debt.
- Assess the expected monthly outflows towards loan repayment before applying.
These days, reputed NBFCs in India bring personalized online tools like the personal loan EMI calculator for precise assessment. Applicants can use this calculator multiple times to check the EMIs they must pay. With no manual calculation involved, the tool instantly displays monthly installments, cost of a loan, and total payable interest. All it requires are loan amount, tenor, and rate of interest applicable. You can access it 24×7 for free.
How are interest rates on loans determined?
Interest rates on unsecured personal loans are determined based on factors like CIBIL score, credit history, financial obligations, age, place of residence, monthly income, loan amount being borrowed, etc. Lenders usually prefer applicants with a good repayment history and those who have followed a financial discipline throughout.
Once you meet the eligibility criteria, you may enjoy lower personal loan interest rates along with nominal additional charges. Check out some of the factors affecting the loan interest rate prior to application.
Process to avail of a personal loan
The step begins with knowing your purposes, determining the required amount, and choosing a reliable lender. Once done, qualify to avail the credit effortlessly by meeting all eligibility criteria. While the parameters vary with lenders, a few common requirements include:
- Employed at a reputed company
- CIBIL score above 750
- Age between 20 and 60 years
- Indian national, residing in the country
Besides these, there may be a minimum salary requirement which depends on an applicant’s place of residence. For instance, those from Kolkata must earn a minimum of Rs.30,000 per month. A customer from Nasik can avail of credit with Rs.25,000 monthly income. Similarly, those from Bangalore must earn at least Rs.35,000 to qualify for a collateral-free personal loan.
Along with eligibility, borrowers also need to submit essential documents for personal loans as required by lenders. These papers must be valid and updated.
Below are the steps of how to get a personal loan online after you fulfill the eligibility parameters and prepare all documents.
- Enter your personal details, followed by employment and financial information, in the online application form.
- Submit the documents as required.
- Once approved, receive the sanctioned loan amount in your bank account.
Reputed NBFCs like Bajaj Finserv make the loan availing process simplified and less time-consuming with pre-approved offers. Available for existing customers, these offers are applicable to personal loans, business loans, credit cards, and many other financial products. Provide a few basic details like name and phone number to check your pre-approved offer online.
- Personal loans registered a robust Y-o-Y growth of 13.5% in March 2021.
- Again, a growth of 11.9% has been recorded by personal loans in June 2021.
Now that you know what is a personal loan apply for one to complete your long-pending purposes or address a financial emergency immediately. Your every timely repayment shall contribute positively to your credit profile, thereby increasing the CIBIL score. This further strengthens your financial profile and allows you to avail funds easily in the future.