Personal loans are credit availed by the borrower to meet personl liabilities like purchasing of some goods ,meeting financial contingencies etc. These are unsecured and donot require either any collateral or gurantor. If a person has an account in the bank, it only adds to his eligibility of availing the loan. In fact personal loans in India are very easy to get and are quickly processed by the banks. However they come with a potent disadvantage i.e. A personal loan entails high interest rates and comes with a shorter repayment time period. There are also penalty charges and late payment charges if you do not pay the installments on time.
The banks have their own eligibility criteria and specific associated with disbursement of personal loans. And these differ from bank to bank. However, nearly all banks divide the potential borrowers into three categories:
- Salaried individuals
- Self employed individuals
- Self employed professionals
Other factors which are taken into consideration are, age, residence, work experience, repayment capacity, past obligations and place of work. The interest rate for a personal loan is decided on the basis of your credit repayment capability and history. Depending on this, interest rates could be anywhere between 14% and 25%, depending on the financial institution. There are three methods of calculating interest on a personal loan. These are fixed rate, floating rate and flat rate.
Documents needed for Personal Loan Application
Personal loans require the least number of documents, making it the fastest to be approved. Documents needed include
- Proof of identity
- Proof of residence/ Address Proof
- Income statement
- 3 to 6 months of your bank statements.
How are personal loans repaid?
Normally, personal loans are offered between 1 to 5 years. The loan is repaid with Equal Monthly Instalments (EMIs). Prepayment is possible but will generally carry a significant prepayment charge.
Getting a personal loan is easy these days but paying off a personal loan becomes tough owing to the high rate of interest. Thus one should be careful while taking a personal loan and try to avoid it as much as possible. However if one has taken a personal loan, he should take a few steps to be able to pay it off in time. These are
- Pay off your credit cards: Try to pay off your credit cards as soon as possible, since credit card debts inadvertently hamper loan payments.
- Budget your spending: Once you have taken a loan, ensure that you budget your spending, so that if in any unforeseen circumstance you cannot make a monthly payment, your savings will help you out.
Personal loans if are not used wisely can play havoc with one’s financial security. Thus one should make prudent financial decisions for a better future.