Personal loan is basically an unsecured that can be availed for any purpose like wedding, purchasing goods, holiday vacation etc and the reason need not be disclosed to the bank. It does not need any security as in housing loan or mortgage where the loan is obtained by pledging the property. The loan amount varies from 20,000 to 50 lakh. The loan tenure ranges from 1 to 5 years.
Eligibility criteria for personal loans
It is available to salaried as well as non salaried people. Most banks sanction loan if the annual income is around 2 lakhs. The upper limit of the loan amount is directly proportional to the annual income.i.e More income, More loan amount. The age limit for applying loan is between 21 – 60 years. Some banks may need proof for the residence of the person for at least an year in the same home. Also read: Student loans in India.
Rate of Interest for personal loans
The two types of interest rates are Reducing balance Interest rate and Flat interest rate. In reducing balance method, the rate is calculated on the reducing principal (it gets reduced when you pay part of the amount). So the interest amount will be reduced as you pay. But in Flat method,interest is calculated for the whole tenure of the loan and it won’t get reduced.
Generally the interest rate is higher when compared with housing loan because of the lesser tenure in personal loan .It varies with the banks and may range from 12 to 40%. The interest rate also varies depending on the annual income of the individual. Also read – Best personal loan rates in India.
Documents required when applying
The documents and the paper work needed for personal are less when compared with other types. The documents commonly asked by the banks are given below. You may need to provide some or all of these below depending on the bank.
– Identity proof ( Driving license/ voter id / ration card etc)
– Bank statement ( 3 months or 6 months )
– Salary statement / slip (2 or 3 months)
– Residence proof (Rental agreement /utility bill etc)
Also read: Best Free Loan EMI calculators from Indian banks.
Types of charges involved in the process
The charges made by the bank before and after getting the personal are given below.
Processing fee or the loan application fee is the fee charged by the bank for processing your loan application and it is non refundable. Most banks wants this fee to be paid at the time of submitting the loan documents. It ranges from 1 to 3% of the loan amount. The banks may waiver this fees sometimes as a promotional offer.
It is nothing but the penalty that has to be paid to the bank if you make a part or full repayment of the loan before the tenure. Some banks have 0% prepayment fee while others charge from 2 to 5% of the outstanding amount.
Late payment charges
If the monthly installment is paid at a later date than the prescribed one, the bank adds a late payment fee which is usually 2 to 5% of the monthly installment.
The bank charges a flat fee for processing the documents submitted along with the loan application.
Loan Disbursement time
After submitting the documents, most banks sanction the loan in 2 to maximum 10 working days.
Banks offering personal loans in India
Almost all national and popular private banks offer personal loans and the most popular in the list are
– ING Vysya
– Axis Bank
SBI and Axis Bank offers 0% prepayment charges whereas ICICI offers 5%.
Points to keep in mind while applying for personal loans in Indian banks
– Compare the interest rate offered by various banks and prefer the one with least value.Annual income has some effect while deciding the interest rate.Find the bank which offers the best rate for your income.
– If you have a plan for loan repayment before the loan tenure, then choose the bank with lesser prepayment charges.
– Choose the loan tenure depending on your financial ability. Longer the tenure, lesser will be the monthly installment.
– Choose the type of interest as reducing balance as it is more beneficial than the other one.
– Register for automatic ECS debit so that you can avoid late payment charges.
– Choose a bank with lower processing fee. Some banks won’t give the processing fee back if your loan application is rejected. Check this point with your bank.
– Submit loan application to one bank and wait till you get the result.
How to compare personal loan rates
Check out the below sites for comparing the current personal loan rates offered by the banks and check your eligibility.