How a Personal Loan Works: Eligibility, Interest Rate, Loan Amount and More
12 September, 2024 | 16:46 IST
A personal loan could be helpful to meet a range of financial needs such as an unexpected medical expense, home renovation, repayment of an old debt or a special occasion like marriage. Availing a personal loan has become quite convenient these days with a completely digital process. You can apply and get approval for a personal loan without submitting any documents physically. The online loan approvals are available based on a few factors like the applicant’s income level, credit score and employment history. Many banks and non-banking financial companies (NBFC) offer personal loans even customised to the needs of borrowers across categories.
Let’s dive into how personal loans work and all the key details like eligibility, credit score, interest rates etc.
A personal loan is an unsecured loan that gives borrowers the freedom to access money without having to pledge any collateral. With the emergence of new-age lending platforms, you can now get personal loans with just a few taps on your mobile phone. The process is completely digital and the disbursal is quick.
A personal loan is offered by banks, NBFCs and online lending platforms (in partnership with lending partners). For example, depending on your eligibility, you can avail instant loans of up to Rs 15 lakhs, with repayment tenures spanning from 12 to 60 months, through online platforms like Moneycontrol.
When you apply for a personal loan, the lender assesses your creditworthiness based on various factors, such as income, employment status, credit score and existing debt. If you meet the lender’s criteria, your loan application is approved, and the loan amount is disbursed to your bank account.
Application: The first step is to apply, either online or by visiting the branch of a lender
Documentation: Once you apply for the personal loan, the next step is to complete a KYC process by submitting the necessary documents. This includes uploading your proof of identity, address proof, income proof (pay slips or bank records), and a PAN card. The actual documents required may vary based on the lender’s policies.
Approval: Once you submit the necessary documents, the lender assesses your application. If you meet their personal loan eligibility criteria, your personal loan would be approved.
Disbursement: Upon approval, you will receive a transfer of the loan amount into your bank account. Some lenders complete the process almost instantly. The amount could be credited into your account within 24 hours.
Repayment: The repayment is made using Equated Monthly Instalments (EMIs) over a pre-determined tenure.
Prepayment or foreclosure: Many lenders let you pay off a personal loan early or foreclose it, i.e pay off the outstanding amount before the term comes to an end. Depending on the lender’s policies, there may be a prepayment charge associated with it.
Fulfilling personal loan eligibility is crucial to increasing your chances of getting a personal loan. While the criteria may vary from one lender to another, the following are the general eligibility requirements for availing a personal loan in India:
Age: To qualify for most personal loans, the borrower must be between the ages of 21 and 60 years. A few lenders may offer personal loans to salaried professionals as young as 18 years old.
Income: A major determining factor in personal loan eligibility is your income. Depending on the city and lender, salaried individuals may need to have a minimum pre-defined monthly salary. There may be different criteria for the minimum income requirements for self-employed individuals, depending on the lender.
Employment status: Lenders generally prefer individuals with a stable employment and income. For those who are self-employed, having a reliable source of revenue from their business is crucial.
Credit score: To qualify for a personal loan, you must have a good credit score. Usually lenders prefer a credit score of 750 or higher. Your credit score is a tool used by lenders to determine your creditworthiness.
Existing loans or liabilities: When assessing your eligibility for a personal loan in India, lenders will also consider your current loans or credit card debts. Your ability to obtain a specific amount of personal loan may be impacted if you already have an existing loan or outstanding credit card debts. The banks take into account debt to income ratio before finalising a loan application.
Why choose a personal loan in India?
Here are a few reasons why you may consider availing a personal loan:
No collateral needed: Not requiring any collateral is one of the primary benefits of applying for a personal loan in India. This makes it a viable choice for many people, especially if you don’t have assets to put down as collateral.
Flexible use of funds: A personal loan in India can be used for any purpose, as opposed to other loans that are limited to specific usage e.g a home loan or an auto loan.
Fast disbursement: Because a personal loan can be processed digitally, money can be transferred fast, often within a few hours after the complete process. This is especially helpful in situations where you need money fast.
Competitive interest rates: You can get a personal loan in India at competitive interest rates due to availability of a wide range of borrowing options. Interest rates for a personal loan in India start at 10% to 12% annually.
Customisable loan tenure: The length of the repayment period for a personal loan in India is flexible. A term can be selected that best fits your budget and it usually ranges between 12 months and 60 months.
How to apply for an instant personal loan on Moneycontrol?
Applying for a personal loan via Moneycontrol is a hassle-free option for those in need of urgent cash. You can apply for an instant loan of up to Rs 15 lakh. It is a 100% digital process and requires minimal documentation.
Here’s how to get started:
Enter key details: To begin your personal loan application, enter some basic information such as your name, mobile number and email ID.
Complete KYC: The next step is to complete the KYC to confirm your identification.
Set up EMI repayment: Choose among the available repayment plans to proceed.
Tips to manage your personal loan efficiently
Though a personal loan can be a convenient option for instant money, responsible loan management is essential to ensure financial stability. This is what you should remember:
Borrow only what you need: Refrain from over borrowing, because that would increase your repayment burden and may also result in higher interest rates.
Make repayments on time: Make sure you pay your personal loan EMIs on time to maintain your credit score.
Read the terms and conditions carefully: Carefully read the terms and conditions of the personal loan agreement, including any fees associated with early repayment or foreclosure, before signing up.
Steer clear of multiple loans: Multiple loan repayments might put a strain on your budget. Try to keep your debt obligations within your income level.
Conclusion
A personal loan in India can be a useful financial tool for managing expenses, provided you understand how it works and meet the personal loan eligibility criteria. With a streamlined application process, competitive interest rates and no hidden charges, a personal loan in India can offer a convenient solution for your financial needs. Always ensure that you borrow responsibly and choose a loan that aligns with your repayment capacity.
Summary
Availing a personal loan is almost instant now. Using the tips shared in this article you can avail the best personal loan at competitive interest rates without any hassle.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
100% Digital
Quick Disbursal
Low Interest Rates
