A personal loan is an unsecured loan taken for personal purposes. It has an easy application process, requires minimum documentation and can be approved in no time. You can use it at your own discretion for any legitimate purpose that you can think of.
Being an all-purpose loan, a personal loan is a dependable source that provides for instant funds to meet your additional expenses emerging suddenly. Be it a trip abroad or a medical emergency popping up out of nowhere, a personal loan is there to share your load.
If you have a good credit history and regular income inflows, you can apply for a personal loan and get approved without much formalities and delays. An easy application process that requires minimum documentation coupled with simple repayment method makes it a favourite for borrowers. Also, there is no requirement of collateral that makes it accessible for a large section of people.
However, you must safeguard various income prospects before opting for a personal loan as there are also certain disadvantages attached to it. For instance, a high fee is charged for processing your loan application. The rate of interest is higher and increases your debt burden and EMIs. The failure of repayment can severely affect your credit score, dampening your future borrowing chances; In case of a default you could be subjected to imposition of sky high penal interest.
Characteristics of a Personal Loan
An unsecured loan is the one that does not require a collateral for borrowing. Most personal loans are unsecured in nature.
A personal loan provides for the flexibility of usage meaning that you do not need to define the reason for which you are taking the loan. You can use it on your own discretion whether you want to go for a family vacation, purchase a gadget, renovate your house, have a dream wedding, pay your child’s tuition fees, go for a world tour or any other purpose.
Easy Application Process
The application process for a personal loan is quick and easy. You are only required to share basic details such as your occupation, income and existing debts.
There is no involvement of bulky documentation. You just need to submit an identification proof, address proof and an income proof along with your application form.
Quick Approval Process
The minimal documentation and information shortens the verification process and hastens the approval process.
High Interest Rate
As no collateral is required for availing a personal loan so in order to cover the associated risk the bank charges a high rate of interest.
Who can apply for a personal loan?
The eligibility for a personal loan depends on multiple factors which include your age, occupation, income, employment & income stability, residential status & stability, credit score and number of dependents.
Both salaried and self-employed individuals can apply for a personal loan. Even NRIs can avail a personal loan in India. The age of a salaried individual should be less than 60 years and for self-employed individuals it should be less than 65 years for taking a personal loan.
If you are working in a company that is listed with the Registrar of Companies or the bank recognises the company as a customer, your minimum income should be between Rs. 12,000 to Rs. 18,000 if you are residing in Tier II cities while it should be between Rs. 18,000 to Rs. 25,000 for those residing in Tier I cities. If you work in a smaller company then these amounts will be higher by 25% to 40%. Some Banks are shy of lending to BPO’s except the listed ones.
Credit score is a major factor guiding your chances to avail a personal loan. A higher credit score enhances your chances of availing a loan. Generally, a credit score of higher than 750 is required for unsecured loans. For secured loans, a credit score of 650 is also considered as good.