The demand for personal loans has been on the rise especially for the big-ticket purchases. These are unsecured loans which can be availed without pledging any collateral or security and help you meet any of your immediate financial expenses such as a child’s higher education, marriage expenses, consolidating your multiple debts, paying your credit card bills, renovating your home and much more.
Let’s understand personal loans better
What is a Personal Loan?
Simply put, a personal loan is an unsecured loan which is available to both salaried and self-employed individuals. The loan can be taken by either a bank or a non-banking financial company (NBFC) depending upon the requirement. It is provided based on key factors such as income level of the individual, credit and employment history, repayment capacity etc.
Unlike a housing loan, car loan or gold loan, a personal loan is not secured against any asset. As it is unsecured, the borrower does not need to pledge any collateral like gold or property to avail it. If the borrower makes any default in the payment, the lender cannot auction anything you own. The rate of interest on personal loans is higher than those on the housing loans because of the greater risk perceived while sanctioning them.
However, defaulting on a personal loan is not a good idea as it would reflect in your credit report and will cause a problem when you will apply for credit cards or other loans in future.
Eligibility Criteria for Personal Loans
Personal loans can be availed by any salaried or self-employed individual online. This is important to note that the eligibility criteria might differ from one lender to another. Given below is the basic criteria that you need to meet while availing them. You can check your eligibility online using online personal loan EMI calculator to know the EMIs that you need to pay every month based on the loan amount that you are taking.
Have a look at the eligibility criteria for these loans-
1. Credit Score: To avail an unsecured loan, the borrower needs to have a good credit score of 750 or above. So, you must check your credit score before applying for them.
2. Job Stability: Your employment stability is checked by the lenders before sanctioning you the loan. If you are working with a reputed organisation or MNC, then it is more likely that you will get the loan easily owing to the stability in your income. For a salaried professional, they must have 2 years of working experience with 1 year in the current job. While for a self-employed individual they must have a minimum of 2 years experience in their current job.
3. Your Net Monthly Income: A salaried individual must have a minimum income of Rs. 15,000 in case of non-metro cities and Rs. 20,000 in the case of metro cities.
4. Your Age: Borrowers also need to meet the age criteria set by the lenders while availing a loan. For a salaried individual, they must be between 21 to 60 years of age whereas for a self- employed individual age should be between 21 to 68 years.
Documents required for availing a Personal Loan
Following are the set of documents required to availing an online personal loan-
For Salaried Individuals-
Proof of Identity: Passport, Driving License, PAN Card or Voter’s ID
Proof of Residence: Passport, Driving License, Voter’s ID or utility bills
Proof of Income: Latest 3 months’ bank statements showing salary credit
For Self-employed Professionals-
Proof of Identity: Passport, Driving License, PAN Card or Voter’s ID
Proof of Residence: Passport, Driving License, Voter’s ID or utility bills
Proof of Income: Audited financial statement of the past two years.
Things to keep in your mind if you are applying for the loan for the first time-
1. Choose the right lender-
Many online digital lenders offer online personal loans. You need to choose the right lender among them who is offering the loan at a low rate of interest so that you can save some of your money.
2. Keep your documents ready-
When you apply for a personal loan, you will need to submit a set of documents for verification purposes. If you want to keep your loan application process smooth and hassle-free, then you need to keep the documents like address proof, ID proof, income proof, bank statements, etc handy.
3. Check the charges-
There are also many hidden charges associated with your personal loan. You need to check them all before applying for the loan. These charges include processing fees, foreclosure fees, etc.
4. Check your credit score beforehand-
Before filling the loan application, borrowers also need to check their credit score and know where they stand. You should have a credit score of 750 and above to get the loan easily.