Let us understand What is Personal Loan. Consider a personal loan if you need extra money to pay for home upgrades, fund a wedding, or consolidate high-interest debt. When handled properly, an unsecured personal loan can help you bridge a budget gap without risking your home or other assets.
What is Personal Loan?
A personal loan is an unsecured loan given to you based on your credit history and ability to repay it with your income. It’s also referred to as a consumer loan. It’s a multi-purpose loan that you can use to cover a variety of expenses.
Maybe you need money to restore your car or pay for a vacation or your wedding? Then a Personal Loan would be a safe bet for obtaining finances.
Personal loans have higher interest rates than home or auto loans because they are unsecured loans. As a result, before you choose one, you must first determine your financial situation.
How do Personal Loans Work?
A personal loan application is similar to a credit card application. You’ll need to fill out your personal information, financial information, and information on the loan you want.
The lender will do a severe credit check on you before approving you, which may temporarily reduce your credit score.
Suppose the lender believes your financial situation and credit score are suitable. In that case, typically, a credit score of minimum in the mid-600s is required – the lender will determine your interest rate, loan amount, and terms.
In less than two minutes, you can apply for a personal loan if you have a good credit history.
Eligibility & Documents Required For Personal Loan
The following individuals can apply for a personal loan:
- Private limited company employees or employees of public sector companies, which includes local, state and central institutions
- Age range 21-60 years old
- Persons who have been in work for at least two years and have at least one year at the current employer.
- People who earn at least an income of 25,000 net per month
- Identity evidence (copy of the passport/voter ID card/driving license/Aadhaar)
- Address document (copy of the passport/voter ID card/driving license/Aadhaar)
- Bank statement from the past 3 months (Passbook of the previous 6 months)
- Two recent salary slips/currently-dated salary certificate, with the latest Form 16
- Last three-year ITR for Businessman/Self Employed Person.
NOTE: Eligibility & Documents Required for Personal Loan is Flexible and can change according to Loan Provider institute.
Pros and Cons of Personal Loan
A personal loan has both advantages and downsides when compared to other financing options. Below are the things you need to consider before making a choice.
Pros of personal loan:
Versatility and adaptability
Some loan kinds can only be utilized for a specific purpose. You can only use the money you borrow to buy a car if you take out a car loan. Personal loans can be used for several purposes, including debt consolidation and the repayment of medical bills.
Interest rates are lower than Credit Card Loan, and higher borrowing limitations
Personal loans typically have cheaper interest rates than credit cards. Personal loans with rates ranging from 6% to 8% are available to consumers with excellent credit histories. You might be able to get a loan that is larger than your credit card limit.
Easy to manage
Some people take out personal loans to consolidate debt, such as multiple credit card accounts. A single fixed-rate monthly payment on a personal loan is easier to manage than several credit cards with varying interest rates, due payment dates, and other considerations.
Cons of personal loan:
Higher fees and penalties
Fees and penalties may be attached to personal loans, increasing the cost of borrowing. For example, some loans have origination fees ranging from 1% to 6% of the loan amount. In addition, loan processing fees may be incorporated into the loan or subtracted from the final amount paid to the borrower.
Higher payments than credit cards
Credit cards provide low monthly minimum payments and no due date for paying off your balance in full. Personal loans have a higher fixed monthly payment and must be repaid before the loan period ends.
Can lead to an increase in debt
Personal loans can be used to consolidate debt, such as credit card balances, but they don’t solve the problem. When you pay off your credit cards with a personal loan, your available credit limit increases. Overspenders might use this to rack up more charges instead of paying down their debt.
Cibil score for personal loans
TransUnion CIBIL, one of India’s leading credit information organizations, was founded in 2000 and analyses your credit history to provide a three-digit score ranging from 300 to 900.
The credit score could be the primary key for your loan approval. A CIBIL score of 750 or more is typically seen to be the best for loan approval.
Your credit score influences several elements of lending and plays an important role in your financial path. Continue reading to learn about the significance of a CIBIL score when applying for a personal loan.
Personal loan for low Cibil score
Your credit score is used by loan providers to evaluate your capacity to repay a loan. Your credit history, the amount of credit you’ve taken, how you’ve returned it, and other factors all go towards this score. Because a personal loan is an unsecured loan with no other assets to fall back on, all of this helps a lender decide whether or not issuing you a personal loan is a dangerous venture.
While you may have heard that a bad CIBIL score prevents you from getting a personal loan, this isn’t true.
Here are the steps you should take to secure a personal loan even if your CIBIL score is low:
- Demonstrate that your salary is sufficient to cover EMI instalments.
- Request a smaller personal loan amount.
- Obtain a guarantor or apply with a co-applicant.
- Make changes to your credit report if there are any errors.
- Request that your lender evaluates your case if your credit report shows a NA or NH.
For more information, you can read: How to Improve CIBIL score | 10 Tips To Improve Credit Score
Personal loan on Adhaar card
When applying for a personal loan, eligible applicants must present a series of documentation. Select lenders will allow you to apply for a personal loan using your Aadhaar card and PAN card, allowing you to avoid the hassles of extensive paperwork.
Personal loan without pan card
For transactions over Rs.50,000 (investments, deposits, etc.) and Rs.5 lakh, a PAN Card is required. It’s also a mandatory OVD for KYC when opening an account or taking out a loan, and it’s necessary when filing income tax returns.
Individuals can now provide their 10-digit PAN instead of sending a photocopy of their card when applying for a personal loan or opening an account.
As a result, getting a personal loan without a PAN card might be difficult, as authorities utilize it to track an individual’s finances and prevent monetary fraud.
Personal loan on credit card
A credit card loan is an instant funding option offered against the financial instrument’s unused credit limit. Fill your immediate cash demands with a fast loan that requires no extra qualifications.
Best Personal Loan App in India
PaySense Instant Personal Loan is for all of your dreams and goals that you may not be able to pursue due to financial constraints.
Whether it’s for a wedding, a foreign vacation, paying medical bills, acquiring consumer durables, or home repair, PaySense can help you get a rapid personal loan of up to Rs. 5 lakh.
The treatment is straightforward and can be carried out in the comfort of your own home. PaySense is offered in over 40 locations across India.
- Home Credit
- PayMe India
- India Lends
- Money View
Make a strategy for how you’ll use the money and how you’ll repay it before you take out a personal loan (with interest).
Remember to use Personal Loan only if necessary, and you do not have options for other loans. A personal loan is an unsecured loan & carries a higher interest rate than other loans such as Home loans, Vehicle Loans, etc.
Try to manage your expenses rather than consider for personal as it should be the last resort of finance.
To manage personal finance, you can read: The 10 Best Personal Finance Tips | How To Build Wealth
Consider the benefits and drawbacks of a personal loan vs. another type of funding.
Consider a home equity loan, a HELOC, or a credit card balance transfer as options. To identify the best borrowing choice for you, use the following EMI calculators: –