All You Need To Know Before Applying For Personal Loan

A personal loan is a very popular funding option in times of financial need. It does not involve any collateral and can be obtained very easily. However, before applying for SBI personal loan or any other personal loan, it is important that you understand what exactly is a personal loan and what are the documents and steps involved in applying for a personal loan.

Personal loan: What is it?

A personal loan is a kind of loan which is not secured. It is offered by different banks as well as NBFCs to help people in need of a lump sum amount. Personal loans do not come with any limit on the end usage and can be utilised by potential borrowers for home renovation, medical emergencies, foreign vacation, weddings and so on. As these loans are free of collateral, the interest rates on these loans are quite high and range between 9% p.a. to 24% p.a. The repayment tenure of this kind of loan is usually 5 years. The loan amount of personal loans usually lies between Rs. 50 thousand to Rs. 25 lakhs. However, many banks offer a personal loan of up to Rs. 40 lakhs, such as the HDFC personal loan. Moreover, the payable interest rate is comparatively higher for personal loans than for car loans or home loans.

Eligibility to apply for a personal loan

In order to apply for a personal loan, the borrower has to meet certain criteria. Although different banks follow different eligibility criteria, there are certain points that are the same in all the banks. These are as follows.

Credit score

This is the most important factor that decides whether or not you will be eligible for the loan. A credit score is a number made of 3 digits and it tells the lender about your past credit behavior, Having a credit score of 800 or above will ensure your creditworthiness. Having it any lesser will reduce your chances of getting the loan approved.

Type of employment

Banks offer personal loans to self-employed as well as salaried individuals working in private and government firms. Usually, individuals working in renowned firms or in the government sectors are given more preference as their jobs are more stable.

Age criterion

Individuals between the age of 21 years to 60 years are eligible to apply for a personal loan. Pensioners too are eligible for loans but under certain terms and conditions.

Income

Government banks sanctioning personal loans, such as SBI personal loan, mostly want individuals to have a monthly income of at least Rs. 15000. Whereas, private banks have the criterion of Rs. 25000 monthly income.

Required Documents

If you are a salaried individual, then the following documents are a must to apply for a personal loan.

●     Identity proof, such as PAN Card, passport, driving license and so on.

●     Address proof, such as Aadhaar Card, Passport or utility bill.

●     Proof of income, which includes statements of salary transactions of the past three months.

●     2 passport pictures.

Steps for online personal loan application

If you are planning to opt for a personal loan online you can follow the steps given below.

●     Visit the website of the preferred bank.

●     Select the net banking option under the segment of personal banking, provided you are already an existing customer enter the login ID and password to open the account.

●     If you are not an existing customer, then press on the ‘Loans’ button and go ahead. You will be navigated to the page to apply for the loan. As a new customer, you can sign in using your Facebook, LinkedIn or Twitter account.

●     After signing in to the net banking account, select the option of personal loan from the loan segment and hit the ‘apply now’ button.

●     Enter the required details on the application form online.

●     Upload the necessary documents and click on the submit button.

●     You may also have to upload the income documents and KYC.

●     The bank will check your eligibility and based on that will approve the loan.

●     Once the loan is sanctioned, the loan amount will be deposited in your respective account.

 Steps for offline personal loan application

To apply for the loan offline, you can follow the given steps.

●     Visit the bank branch.

●     Enter all the required details on the personal loan application form.

●     Submit all the required documents.

●     The bank will check your eligibility and based on that will approve the loan.

●     If the loan is sanctioned, the loan amount will be deposited in your respective account.

Although personal loans are a popular funding option, it is not a very viable option due to its high interest rates and low security. It is always wise to keep it as a last resort. Moreover, always weigh down all the personal loan options and parameters provided by different banks and read the fine print thoroughly. Be wary about hidden and extra charges imposed by banks.