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Personal Loan


A personal loan is an unsecured loan that can be taken by a salaried or a self employed individual. Personal loans can be taken to meet any unforeseen financial needs. You can take a personal loan to pay for child education, marriage, hospital expenses, funding travel or home improvement. Unsecured loans mean you don't need to offer any collateral security. For the same reason, the lenders usually look at your eligibility for loan from a variety of data like credit score, your annual income, your income tax records and so on. There are a few new lenders who lend on the basis of alternative credit scores as well. Alternative credit score is a measure of non credit payment history like payment of rent, utility payments, car insurance, and cellphone plans, just to name a few. Personal loans are extremely easy to apply these days as a platform like Cashiya offers facility to apply for loans from various banks and financial institutions, and also get instant approval.

Features of Personal Loans

Not tied to a particular purpose
You can use the amount taken as a personal loan for any purpose. This is quite different from a housing loan which has to be used for the purchase of a house or a car loan which has to be used to buy a car.

Types of Personal Loans
A personal loan can be used for any purpose. However the following types of loans are usually applied for under this category.

  1. Wedding Loans: Taking a personal loan for a wedding is among the most common reasons for taking this type of loan.
  2. Home Renovations: These can involve a substantial expense and people often taking a personal loan for this purpose
  3. Holiday Loan: You can take a personal loan to go on a holiday or vacation. For instance, you may not have accumulated enough savings for a dream vacation but you may have free time. In such a scenario you may wish to consider taking a personal loan for your holiday.
  4. Top-up Loan: If you have taken a loan under a different category such as a home loan or education loan but wish to top it up, you can do so using a personal loan.

Benefits of Personal Loans
  1. Freedom to use loan proceeds: You can use a personal loan for any type of expenditure
  2. Quick approval: The approval process for a personal loan takes less time than say a housing loan. If your bank has an online approval system in place, it may take less than 72 hours.
  3. Flexible Tenure: The tenure for a personal loan is flexible and depends wholly on your needs. Banks typically approve personal loans for tenures up to 7 years.
  4. Fixed Interest Rate: The interest rate on personal loans is fixed for their entire tenure. This is quite different from overdrafts or even housing loans which are subject to floating interest rates which can be revised upwards.
  5. Tax Benefit: Use of a personal loan for home renovation is deductible up to Rs 2 lakh per annum under Section 24B.

Personal Loan Eligibility
These criteria will change from one bank to another. However in general, the following criteria apply
  1. Age from 21 to 60 years
  2. Regular income, typically through a salary or through a profession (such as medicine, law, accountancy, architecture etc)
  3. Minimum salary of Rs 25,000 per month for salaried individual. Minimum income of Rs 5 lakh per annum for professionals.
  4. Minimum CIBIL score (credit score) of 650.
  5. Maximum EMI as a percentage of income of 65%.

Dos and Dont’s while taking a personal loan

Dos
  1. Shop around for the lowest rate. You do not have to take a personal loan from your own bank, you can approach a bank which charges a lower rate.
  2. Consider all the charges and fees involved. Many so-called zero percent EMI loans actually feature a host of charges and costs.
  3. Calculate the actual interest rate. A flat rate on a personal loan does not take into account the reduction in principal amount over time and hence you end up paying a higher rate than an ordinary loan carries
Dont’s
  1. Take a loan you cannot repay. This will be a problem, especially with personal loans used to fund impulse purchases like electronics or gadgets.
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