As per a recent report, the personal loan market in India is expected to grow at a CAGR of 10% till 2025.
Several individuals prefer a personal loan for financial support as it comes without any collateral. Moreover, due to the no-end use restrictions, borrowers can assign the funds as per their financial needs. Again, this loan facility can be availed in relatively lesser time and hassle-free ways.
However, borrowers need to be responsible and organised while paying back the loan amount in time. Thus, it is important to understand all the underlying elements such as current personal loan interest rate, advance amount, tenor, EMIs, eligibility criteria and documents, etc.
Here is a complete guide on the key aspects of personal loans –
- Interest rates, loan amount, and tenors
The loan amount of personal financing can go up to Rs.25 lakh. Thus, while applying, individuals should always carefully decide the advance amount. Also, they should consider financiers that provide attractive personal loan interest rates and flexible repayment tenors.
A higher loan amount and an interest rate accumulate a higher cost of loan. Even though longer personal loan tenorhelps to keep the monthly payable amount affordable, it eventually incurs greater outstanding. Thus, borrowers should select these elements as per their repayment capacity to avoid default payments.
- Eligibility parameters and required documents
Personal loan eligibilitycriteria include the citizenship, age, CIBIL score, and employment status of an applicant. Any Indian resident aged between 23-55 years with a credit score of around or above 750 is eligible to apply for personal loans. Moreover, applicants also have to be employed with a recognised private or public company or MNC.
Lenders may lower personal loan interest ratesfor borrowers who possess well-managed credit history and relatively higher CIBIL score.
Furthermore, applicants need to submit some documents to verify their eligibility. KYC documents, salary slips, employee ID, and the last three months’ bank account statements are the basic required documents. However, depending on the loan amount and eligibility, lenders can ask for other relevant documents as well.
Another important factor while considering personal loans is EMIs. Borrowers should assess their fixed obligation to income ratio or FOIR before fixing any EMI amount. This ratio implies the credit-repaying capacity of individuals.
FOIR is calculated by dividing the monthly obligations by monthly income. A ratio around or below 50% indicates higher credit managing ability.
Borrowers can use a personal loan calculator to decide the correct EMIs as per their earnings. It helps them to pay the dues on time and maintain a good credit history.
- Part-prepayments or pre-payments
Personal loans also come with part-prepayment or prepayment facilities. With this facility, borrowers can repay a part of the advance amount and reduce their EMIs/tenor, or clear the entire outstanding dues and close the loan account.
Borrowers usually pay the initial EMIs towards interest compounds. Thus, they should opt for this prepayment or part-prepayment facility during the initial phase of repayment.
- Other charges
While deciding the financier, applicants should look for all the terms and conditions as well as various charges. These can include prepayment fees, late payment fees, processing fees, statement charges, etc. Individuals should compare all the lenders and their products before selecting one.
Nonetheless, borrowers should always consider an easy and convenient application process. For instance, NBFCs like Bajaj Finserv provide pre-approved offers that simplify the loan approval process. These offers are also applicable to several financial products like personal loans, business loans, etc. Individuals can check their pre-approved offers by submitting details like their name and phone number.
Thus, applicants should look for these above-mentioned aspects like personal loan interest rate, EMIs, eligibility criteria, etc. before applying. Moreover, they also need to know the reasons for personal loan rejection and how to avoid them.