Step-by-step process of personal loan: How to get it

Personal loans are unsecured loans and are, therefore, easily processed. Unlike home or car loan, the application process for a personal loan is simpler as the bank does not have to verify the details and eligibility of the properties and assets that you intend to purchase. Banks also do not need to verify the details and veracity of any collateral as there are no collaterals in personal loans.

In case of personal loans, the applicant is the collateral. So all the bank needs to do is verify the details of the applicant, the credit worthiness of the applicant and his or her credit history. Additionally the bank requires assurance that the applicant has a job and will be able to repay the loan on time. Once that is done, the application is processed and loan approved.

 

Personal loan process in steps

Personal loans are easily processed and applications are approved faster as compared to other secured forms of loans.

Here is a step by step breakdown of what happens in the personal loan process:

- Like any other loan, the process of a personal loan also begins with an application. Any person interested in a personal loan makes an application for the same. The application can be done online or offline. Sending the application online will save you some more time as online applications are processed faster.

- The bank receives the loan application. The bank will then verify the information provided by you in the application form. Details that are available with the bank will be verified immediately such as your bank statements, salary deposits and any or all EMIs being deducted from your account.

- In the next step the bank will verify details about your identity that you have furnished in the application form. You may be familiar with the Know your Customer or KYC process. This is where the bank will complete the KYC process. You may be asked to visit the bank along with originals of the documents submitted along with the application form. Many banks these days send an executive to the applicant to complete the KYC process at the applicant’s convenience.

- To confirm the address you have mentioned on the application form, the bank may send an executive to your home or office. The bank may also verify your employment details by cross-checking with your employer.

- Once the verification process is complete, the bank will check your credit worthiness. First it will check your credit score. With the help of your salary slips or IT return, the bank will ascertain your loan eligibility.

- If you have a credit score that is higher than 750, your loan will be approved immediately.

- The loan amount and tenure will be decided based on your credit score, age, annual income, salary growth prospects and number of years left in service.

- Once your loan is accepted, you will have to pay the processing fee.

 

FAQs

How can I apply for a personal loan?

The personal loan process is simple. You can apply for a loan online by visiting the official website of the bank, choosing a personal loan of your choice and applying directly. The website allows you to upload copies of your documents along with the application form.

You can also walk up to a branch of the bank and ask a relationship manager to help you fill out an application form. You can also request a call back from the bank’s executive regarding an application. The executive will guide you through the application process.

 

What are the documents required for a personal loan?

The bank requires you to submit proof of income, address and identity. As proof of income, you can submit copies of Form 16, salary slips, bank statements and Income Tax return. Additionally you may have to submit a copy of your appointment letter as proof of continuation of employment. For proof of identity you can submit copies of PAN Card, passport, driving licence, Aadhaar Card or Voter ID. As proof of residence, you can submit copies of Passport, Aadhaar card, Voter ID card, house registration certificate, sales deed, Aadhaar card, utility bills or LIC payment receipt. Apart from this you have to submit two passport size photos.

 

Why was my personal loan application rejected?

There can be many reasons behind a bank rejecting your personal loan application. One of the most common reasons for rejection is a poor credit score. If your credit score is below 750, you are less likely to get your application approved. Yet another reason is if you apply for loan at multiple places. Every time you apply with a bank, the bank makes an enquiry to check your credit score. The credit bureau records each of these enquiries and more number of enquiries make you look like a credit hungry person. Your chances of loan approval are, therefore, reduced.

Make sure to check the eligibility criteria of the loan for each bank before applying. Many times loan applications are rejected because the applicant doesn’t fulfil the eligibility criteria. Another reason for banks to reject your application is if you do not provide correct information on your application form. Fill the form carefully to avoid rejection.

Your loan application may also be rejected because the bank perceives your employment status to be unstable. This usually happens if the applicant has a history of quitting multiple jobs. Another reason why your loan application may be rejected if you have enormous existing debts. In such case, the bank perceives you as a ‘high risk’ applicant.

 

What are the fees that I have to pay while applying for a loan?

At the time of submitting your application, you need not pay any fees. The application form is available online for free. You can also get this form at a branch for free. There are no application fees for applying for a loan.

However, once your loan is processed and approved, you have to pay a processing fee to the bank. This fee is usually a percentage of the loan amount. The processing fee is the same for online and offline applications.