Personal loans are easy-to-use, unsecured loan that can be taken by any bank or financial institute, depending on one’s needs. Personal loans are given to the customers based on their income, credit history and employment history, repayment capability, amongst other factors.
One of the reasons why some people prefer availing a personal loan in case of any emergency or unwanted event is because of the fact that this loan is given without asking for any security asset, unlike a car or home loan. However, the personal loan rates are on a higher side than home or car loans because there is no security asset involved which can be later auctioned, in the case of failure of loan repayment.
Personal Loan Uses
Personal loans can be availed whenever there is any financial need or emergency situations, such as an unexpected rise in wedding expenses, higher education, home renovation, international holiday, international education, fulfilling property down payments before you buy one, investing in a new business, or even fixing broken cars, amongst others.
Banks do not monitor the use of personal loans unlike home or car loans; thus, making them useful for any kind of situation.
Maximum and Minimum Loan Amount
Though it is a lucrative scenario to avail personal loan, however, one needs to understand that at the end of the day, it is a liability to repay the loan. So, it is important to understand one’s need before applying or availing the loan.
Most banks and financial institutions have the policy to restrict the loan amount in such a manner that the EMI doesn’t exceed 40-45% of one’s monthly income. In the case of a self-employed applicant, the loan amount is determined by considering the profits as per the latest Profit/Loss statements.
Similar to the restriction on the maximum loan amount, there is also a restriction on the minimum amount of loan that can be availed. Though this amount differs from bank to bank, most banks don’t allow to avail loans lesser than Rs 30,000.
However, having a co-borrower helps if one is looking to avail higher loan amount. The co-borrower can be one’s spouse or parents. However, if the co-borrower has a poor credit history, there are chances that the application might be processed for a lower loan amount. It is always advisable to consider all these points, before getting a co-borrower.
Documents Needed
The bank or financial institute will require certain documents for personal loan approval.
- Income proof for salaried professionals or ITR documents for self-employed
- Address proof documents
- Identity proof documents
- Educational certificates along with business licenses in case of self-employed professionals
Repayment and Prepayment of Loan
Most banks do not allow the prepayment of the loan while some others allow prepayment of the personal loan only after the applicant has paid some loan instalments. However, prepayment charges will be applied, in such cases. The loan repayment can be done via post-dated cheques (PDCs) or electronic transfer (ECS), depending on one’s convenience.
While applying for personal loans, it is always better to check the interest rates of different banks and financial institutes, and then take the final call.