Home Banking Personal Loan: The medium size Loan

Personal Loan: The medium size Loan

by Banking Desk
The Medium Size Loan

“Our abode in this world is transitory, our life therein is but a loan, our breaths are numbered and our indolence is manifest.” A very famous quote from Abu Bakr, it shows the deep connection we hold innate to loans.

A personal loan is thus an emergency lifesaver in cases of large expenses or emergencies. By definition, personal loans are unsecured loans taken from banks or non-banking financial companies (NBFC) by individuals to meet their personal needs.

By unsecured, we mean no collateral. That is why the interest rates are a little bit higher and lenders might need to have proof of your credibility through your financial history. Also, with some personal loans, the lender might also want information on where you are going to use the money.

If the reason is legal and justifiable without any sinister intentions, you are safe. A personal loan is often the quickest way to meet an emergency owing to its quick approval, unrestricted end-use, and instant disbursal.

Topics to be covered in this article are –

  • Myths about personal loans
  • Purposes for which a personal loan may be used
  • Key features and benefits of a personal loan
  • Types of personal loans
  • Must know terms related to personal loans
  • Personal loan – Rate of Interest
  • Personal loan – eligibility criteria
  • Personal loan – documents required
  • Paisabazaar is here to help you out in getting a personal loan
  • How to apply online for a personal loan at paisabazaar.com
  • How to apply for a personal loan by visiting the bank?
  • Top banks providing personal loans
  • Personal loans provided by NBFCs
  • How to choose the best personal loan for oneself
  • Personal loan FAQs

Myths uncovered about personal loans

  • Personal loans are offered by banks only – this is not true. If your loan gets rejected from banks, you can approach Non-Banking Financial Companies (NBFCs) like Bajaj Finserv, Tata Capital, and HDB financial services or digital lenders like EarlySalary. These service providers have flexible eligibility criteria as compared to banks.
  • The loan application is rejected if you have a low credit score – a credit score of more than 750 is advisable. Though, even if your score is lower than this, other factors such as income, employers can still get you a loan at a wee bit higher interest rate.
  • Those who earn regular salaries can only avail of personal loans – this is certainly not true. Self-employed people like businessmen, Chartered Accountants, doctors also avail of personal loans. In their case, the banks check their ITR (Income Tax Return) receipts and credit scores. Pensioners are also offered personal loans by banks.
  • Processing time for a personal loan is long – this is totally wrong. With banks being digitalized you can easily apply for a personal loan online by submitting a minimum number of documents and with instant approval, the amount gets disbursed within 3-5 days.
  • Personal loans have high-interest rates – the interest rates depend on your credit history, repayment options, age, employability, and other such factors. Availing a personal loan is always better than getting a credit card as these credit cards have very high-interest rates, short term repayment, and complex procedures.
  • Prepayment option is not available in a personal loan – some banks may offer 6-12 payments before closing off your loan prematurely before the tenure ends.
  • You can use personal loans for personal reasons only – this is very wrong. Since end-use is committed to the consumer, he/she can use it for even paying back the salaries of employees, investing or purchasing new machines for their business.
  • It is easy to apply for personal loans to various lenders at once – though, it is easy, it is not advisable. Every time you apply for a personal loan it gets reported to the credit bureau which then instated hard inquiry and this gets reflected in your credit history to lenders. They then see you as credit hungry and reject your applications. Also, you must remember to take a loan that you can repay or else it takes you into a debt-trap. You must choose the repayment period which works stress-free for you.

Applications/ purposes for a personal loan

An important tip to remember is that the purpose of availing a personal loan can affect the size, interest rates and repayment period heavily. It is always advisable to put in some collateral to bring the interest rates lower during the transformation from unsecured to a secured loan.

  • To pay off existing debts – when you have credit debt on multiple accounts, you can always go for a personal loan. These have lower interest rates. So you can collectively pay off the debt on all your credit card accounts and then pay off the personal loan with the earnings from a credit card. Debt collection loans have special features, for example, their interest rate is lower than the average interest rates on the consolidated debts. Also, the monthly payment is lower than the debt. This is a function of the loan rate and term. And finally, the loan must be large enough to pay off all your debt.
  • Financing of a major one-time purchase – whenever some new car or a second-hand car our chase his made, often conventional vendors do not accept credit cards. In these cases, you can avail of an unsecured personal loan where the APR will be lower than your credit card. Also, if you think you won’t be able to pay off with a credit card or your limit will max out, you must go for a personal unsecured loan. Home equity loans and vacations can be such purchases.
  • To cover for unexpected expenses – in cases of medical emergencies, these quick approval loans are the best. In some cases, your loan disbursement comes before you start paying with interest on your due payments.
  • For a wedding – weddings require different amounts to bee plaid at different times. With the reservation of the venue to the jewelry, different payments are required. So it is affordable to take a personal loan with a long repayment period to pay off the loan in affordable monthly installments.
  • To adopt a child/raise children – the tax departments often create a lot of hassle around adoption. Sometimes you might be unable to cope with the taxes and so it is advisable to pay them off with a personal loan. Along with the adoption fees and lodging and medical expenses and all, it all becomes a costly affair.
  • To expand the business – to cater to the large investment charges until your break-even point is reached, you often need a lot of money. This is when personal loans come to the rescue.
The Medium Size Loan

Key features and benefits

  • Unrestricted end-use – unlike home loans, mortgages or auto loans, you can use personal loans for debt repayment or investments or weddings or any other requirement you deem necessary. This is the easiest way to get cash.
  • Speedy disbursal – with  brood credit score and repayment history, you are liable to get a personal loan within 72 hours
  • No collateral required – you do not need to arrange for any collateral. Though, if you are able to, it will surely help to reduce the rate of interest on your loan, but as such, it is no mandatory need.
  • Flexible repayment tenure – longer tenure means lower EMIs (equated monthly installments). You can choose to have a shorter tenure or longer as per your ability and future plans.
  • Fixed-rate of interest – personal loans is often given at a fixed rate of interest. So you do not have to worry about changing interest rates. This means the monthly installments remain the same for as long as the loan is not completely paid off.
  • Tax benefits – in some places, if you use the money of personal loan for the renovation of the house or such activity and can prove it through credible documents, you are given a huge amount of courtesy to the rate of interest. Thus, you are saving interest rates and taxes as well.
  • Minimum documentation – personal loan application can be filed online with a minimum number of documents required by the lender such as proof of identity, proof of address and proof of income.
  • Flexible loan amount – personal loans range from as low as 10k to as high as 40lakhs. The pain amount depends on your repayment history, your credit score, income, profession, age, employer reputation, etc.

Types

  • Agricultural loan – these have subsidies by the government and programs that offer a constant amount of loans at lower interest rates and smaller EMIs to pay.
  • Consumer loan– these vary according to the market conditions. The interest rates and tenures vary individually from person to person as well as according to what the bank stipulates.
  • Flexi loan – this is a type of new age loan where lenders provide pre-approved loan limits which can be utilized by the customers as and when required. Here the customers can prepay the borrowed amount anytime.
  • Long term loans – these are often designed to cater to a vast economic segment of people so they can enjoy minimum EMIs over a long period of loan repayment and can see through all their requirements of house renovation etc easily. People reap maximum benefits through this offer.
  • Personal loan balance transfer – used to reduce the overall burden of debt, these are facilitated with the transfer of an existing loan amount to another financial institution which offers a lower rate of interest which ultimately reduced the amount of loan due.
  • Secured loan – these provide low-interest rates is some kind of collateral can be provided to cover up in case of default. This type of loan has the fastest processing time.
  • Personal loan against LIC policy – as is evident by the name, this type of loan uses the Life Insurance Policy as collateral with the rate of interests and tenures competitive with those of other secured loans.

Must know terms related to personal loans

  • Personal loans for women – provided say a preferential rate of interest to budding women entrepreneurs and working women. It is offered by many banks and NBFCs.
  • Personal loan for a pensioner – these are loans provided for pensioners so they can cover their medical expenses, day to day costs and any vacation trip without financial hassle.
  • Pre-approved personal loan – these are usually called instant loans provided to regular customers of the banks without much documentation and an amount is transferred within hours. The amount depends on the reputation of the customer in the bank.
  • Top-up loan – this is offered on top of an existing loan amount. It is usually done by NBFCs.
  • Balance transfer – here the existing amount of dues are transferred to another lender with a lower rate of interest. This reduces the loan repayment amount.
  • EMI – these are equated monthly installments done to repay the principal amount of the loan with interest accrued.
  • Partial prepayment – this is when the customer pays an amount larger than EMI in the fixed monthly tenure amount. It reduces the total loan amount and is followed by pre-payment penalties and charges imposed.

Rate of interest

Personal loan interest rates differ from one bank to another. Mostly, they depend on below-given factors-

  • Credit score – it is usually a three-digit number. Your credit score reflects your previous financial behaviors and repayment abilities. Higher the credit score, the higher are the chances of getting a personal loan with low-interest rates. Since a high credit score means the chances of defaulting are lower, so the lender trusts you and you reap benefits.
  • Loan amount – higher the loan amount, higher will be the interest rate as the risk is higher if defaulting happens.
  • Loan tenure – some banks have the policies of charging higher interest rates or lower for longer tenures than shorter tenures depending on the internal regulations of the bank.
  • Repayment capacity – if you showcase to have repaid previous loans in time then your chances of availing a PL with low-interest rates goes up.

How to get a personal loan with low-interest rates

  • Have a high credit score. That shows the lender you are financially responsible.
  • Have no outstanding debt
  • Have a credit utilization ratio of 30% or less. The credit utilization ratio is the ratio of the credit you are using to the total credit you have. A lower ratio shows the lender you do not have proclivities to pro-active excessive spending.
  • Ask for a loan with whom you already have a prior relationship
  • Always try to go for a secured loan with the collateral as shares or something like that.

How to decrease total payout

  • Opt for a small loan amount. A small principal means a smaller interest accrued.
  • Opt for shorter tenure i.e. larger individual EMI but smaller overall interest payout
  • Opt for a loan that provides the facility of part- prepayment as it reduces the total loan principal

Eligibility

Personal loans are for individuals and not businesses. Most banks offer them to salaried as well as self-employed individuals with the eligibility criteria varying a little from bank to bank. The age of the customer ranges from 21 to 60 years. Minimum income for a salaried man goes up to 15k per month whereas, for a self-employed guy, it is set at 5 lakh per year. As for employment stability, a minimum of 2 years of work experience is required whereas with salaried people another mandatory requirement is one year experience at the current organization.

Documents required

Though the actual list of the document may be different for different lenders, the mainframe documentation asked for is as follows-

  • Proof of identity – a PAN card, Aadhar card or passport works for this. They just need to identify whether you are playing some kind of game or not.
  • Proof of address – bank account statement, lease or property papers, utility bill, driving license or passport works in this case as well.
  • Proof of income – for the salaried people, lenders need previous salary slip, bank account statement or form 16. In the case of self-employed individuals, they ask for previous ITR, balance sheet or bank account statements.
  • Proof of business – this needs either the certificate of practice, partnership deed, GST registration or shop act license as proof

How paisa bazaar helps in getting a personal loan

Paisabazaar offers scanning through the available lenders and comparing their offers to get you the loan that matches your requirements and abilities based on minimum information provided by you such as loan amount and tenure. It provides you information on e-approval, chances of approval, eligible loan amount, loan EMI to be paid. All of this is done while maintaining transparency and privacy of the processes used for recommendation with the justifiable rationale behind it.

Benefits of using paisa bazaar

  • Instead of searching through multiple lenders individually, you can go through all of them and their offers on a single platform.
  • Paisabazaar searches through its database to provide you the list of all possible lenders, banks as well as NBFCs which won’t adversely affect your credit score or your credit history.
  • It also provides you with the loan amount you will be eligible for based on the information provided by you.
  • Paisabazaar uses an algorithm called SmartMatch to match the recipient with lenders who might potentially approve the loan.
  • Calculate the EMI using Paisabazaar EMI calculator
  • Also, along with the research, you can also apply online for the personal loan through paisabazaar.com and enjoy the benefits of being fully aware with a stand – by team of customer care to answer any of your queries and advise you what is best for you.
  • Instant in principle e- loan approval using paisabazaar.com
  • Privacy and transparent operation are assured through the ISO certification. So all your details are kept safe without any risk of hacking or leaking without being leaked to any other customer in any way.

How to apply for a personal loan online at paisabazaar.com

Search for the website paisabazaar.com on your search engine. Sign-up and create an account. Login using your password and username. Get to the ‘personal loan’ page and follow the below-given steps –

Step 1 – enter your personal details such as name, occupation, age, current city, monthly income, monthly income and click on proceed.

Step 2 – to get a better-customized search for you, enter additional details such as company name, work experience, current loan EMI and PAN card for getting the best personal loan offer

Step 3 – the search presents you the list of available lenders with their offers which can be instantly approved. Choose the best offer out of the list.

Step 4 – add any additional details regarding the specific loan and the customer care support team will contact you and guide you through the documentation process and the pain disbursal process.

How to avail a personal loan by visiting the bank

For those people who are a little wary about online operations and their security, there is always an option to visit the bank. The steps carried out will be as follows –

Step 1 – Choose your requirements. Conduct the research and go through the different lenders and offers to choose the right one for you.

Step 2 – check whether you are eligible for the loan according to your needs.

Step 3 – calculate monthly installments using some online EMI calculator. You can modify the interest rate and tenure to match your preferences in these calculators to calculate approximate monthly installments.

Step 4 – visit the nearest branch of the bank or you can have them come to your house as well.

Step 5 – submit the required documents with valid proofs and also be ready with alternate ones just in case. This makes the process foolproof and fast.

Step 6 – after verification, the loan amount will be disbursed directly to your savings bank account or to the account you want it transferred in.

Top banks providing personal loans

Banks such as HDFC, Tata Capital, RBL bank, Citi Bank are known to be the best banks to provide instant personal loans with interest rates ranging from 10.8 % to 18%.

Personal loans provided by NBFCs

Most NBFCs provide competitive interest rates. After the survey and comparison, some of the best in business are as follows –

  • IIFL Finance with an interest rate of 13% up to 25 lakhs loan amount
  • Aditya Birla Capital with interest ranging from 16.85% to 17.85% and loan amount up to 50 lakhs
  • Bajaj Finserv with an interest rate starting from 12.99% with a loan amount up to 25 lakhs

How to choose the best personal loan

The factors to be taken care of for choosing the best personal loan for you are as follows –

  • Look for a lender with easy eligibility criteria so that your process doesn’t involve too much documentation or paperwork or stringent conditions which might be difficult to assess.
  • Check and compare lenders based on their interest rates. This market survey is important to know where you might be getting a lower interest rate with a shorter tenure and manageable EMI installments along with pre-payment facility.
  • Enquiring about the additional fees and charges from them such as processing fees, bounce charges, penal interests, and secure fees as well. You do not wish to end up paying more than you took.
  • You must ensure repayment flexibility as it allows to set the tenure based on your capabilities so you don’t end up defaulting.

Personal loan FAQs

Q1. Are the personal loan interest rates fixed type or floating type?

Ans. In the case of fixed interest rates, the EMI remains constant all throughout the tenure of loan repayment. As for floating type, the banks use reducing interest and so the EMI decreases proportionally. This can be done by banks preferentially if they want to based on the market conditions on a half-yearly on yearly basis.

Q2. What is the difference between reducing and flat interest rate?

Ans. In a reducing interest rate, you are supposed to pay interest on the remaining amount of your loan that is due. So the EMI reduces as the loan is repaid more than previous times. In case of a flat interest rate, you have to pay the interest on the complete amount. Usually, banks employ reducing interest rates.

Q3. What is a relationship discount?

Ans. If the customer has a previous relationship with the lender, such as some fixed deposit or salary/savings bank account or credit card loan, then the lender can provide relationship discount on the form of zero processing charges and other related charges and a lower interest rate to facilitate the relationship further.

Q4. How long does it take for a personal loan to be disbursed?

Ans. When applied through paisabazzar.com, as soon as you send in your loan application and required documents, they are verified and the lender gets back to you. Usually, after the verification process, the disbursal takes up to 48 hours and up to 3 or 4 days at max.

Q5. Why my initial EMIs have a lesser impact on the principal amount due?

Ans. The initial EMIs are spent on repayment of the interest rates charged on the loan amount. As some installments pass, they add up and the cumulative decrease in the due loan amount starts reflecting in the decrease.

Q6. What will happen if I default my personal loan EMIs?

Ans. Initially, the lender will try to get back to you and recover his money through settlements and recovery agents. If still, you end up defaulting your loan, it is reported to the credit bureau and gets reflected in your credit history which adversely affects the credit history.

Q7. How is a personal loan different from a loan against a credit card?

Ans. Loan on a credit card is almost similar to a personal loan with the difference that a credit card doesn’t require much documentation like a personal loan. Both are almost the same in terms of interest rates and tenures. The drawback is, you can only get the loan issued by the credit card company and it limits your chances whereas this is not the case with a personal loan. With a personal loan, you have the freedom to search who is best for you.

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