To meet the urgent needs of funds, individuals can apply for personal loans from banks. It is one of the easiest ways to arrange funds for your emergency needs and meet larger expenses. Personal loans have become quite popular because they are unsecured loans. As you do not have to provide collateral security, individuals prefer to avail these loans at a higher rate of interest. You can avail of a personal loan online from a bank or financial services company offering within 48 hours at a specified rate of interest.
What Makes Personal Loan Better Choice in times of Emergency?
A personal loan is an unsecured loan from a bank or non-banking financial company (NBFC) at a specified rate of interest. The important aspects of eligibility for a personal loan are income level, credit score, employment history, repayment capacity, etc. Individuals prefer personal loans because they do not have to attach any security such as gold, property, etc.
As personal loans are unsecured, the interest rates charged are a little higher when compared to gold loans or loans against property. However, if you consider that someone doesn’t have a property to pledge or any substantial amount of gold to offer as collateral, in those times, a personal loan is the best. Also, the approval time for a personal loan online is much lower and you could get the funds approved in as little as 10 minutes if you’re preapproved by the bank. However, personal loan rates are higher because the risk of lending is higher for the lenders.
How much can you borrow Personal Loan NBFC?
The very obvious question that comes up is regarding the maximum amount an individual can borrow. The maximum loan amount depends upon your level of income, profession, and assessment by the lender on your loan application. The lender evaluates your personal loan apply form to infer the affordability of the loan amount. The calculations are done in a way that the personal loans EMI is not more than 40-50% of an individual’s monthly income.
Apart from your income, the lender should also assess the current debt on an individual. If you are already under debt, the eligibility to get the maximum loan amount reduces. For a businessman or self-employed individual, the assessment is based on your profit earned in profit and loss statement. Similarly, for a salaried individual, the assessment is based on the monthly income credited in your account less liabilities.
Purposes of a Personal Loan
Personal loans are available to borrowers for any personal financial need. The bank does not question or monitor its use. Generally, individuals apply for a personal loan low interest for a child’s education, marriage, business expansion, renovation or construction of a property, purchasing electronic appliances or gadgets, medical emergencies, down payment of a car, repairs, etc.
How do banks decide the maximum disbursal amount for a borrower?
The process to sanction a personal loan differs from bank to bank, but some of the aspects are similar related to determining the eligibility of the borrower. The first aspect is the credit score of the borrower. A score close to 900 is an ideal score to be eligible for a personal loan. The score indicates that you are a safe or credible borrower and lenders can trust you. Based on your previous record of payments, it can be understood that you will repay the loan installments on time. The lenders can sanction you a higher amount based on your credit score. However, personal loans with low CIBIL score may also be available for borrowers, although the interest rate would be much higher in that case.
Other important points to determine the maximum loan amount are income level and the amount of debt. Your repayment capacity can be determined by the current salary slips and the existing debt. If you are already under huge debt, it lowers your repayment capacity. Hence, the lenders may not sanction the maximum loan amount. Hence, unpaid credit card bills, outstanding EMIs, and lower income reduce your repayment capacity and chances of a higher loan amount.
Eligibility for a Personal Loan NBFC or Bank
- A salaried individual working in private companies or public sector undertakings.
- The income must be regular and consistent.
- Individuals must be between 21 to 60 years of age.
- A self-employed individual must show a specified income backed by financial documents such as income statements, tax payments, balance sheets, etc.
- A salaried individual must have a minimum of 2 years of experience with 1 year of experience with the current employer.
- Identity proof (a copy of voter ID /passport/Aadhaar/Driving license)
- Address proof (a copy of voter ID /passport/ Aadhaar/driving license)
- Last 3 months bank statements or last 6 months passbook copy
- Copy of latest three-month salary slips
- Proof of end-use
This is a list of documents sought by any lender when you go for a personal loan apply. However, a personal loan without documents may be offered by some lenders under certain circumstances.
Benefits of Personal Loan During Emergencies
- Availability of funds without collateral – One of the most important reasons for the popularity of personal loans from banks is that it is available without attaching any collateral. Unlike a home loan, you can get the funds from a bank without providing any property, gold, or other assets.
- No end-use restrictions – Personal loan amount can be used by the borrower for any purposes such as marriage, child’s education, medical emergencies, vacation, purchases, etc. There are no restrictions given by the lenders to the borrowers for the usage of the loan amount. After sanctioning the personal loan, the lenders do not monitor the use of the loan amount.
- Quick loan process– With the advent of digital technologies, the personal loan application process is the quickest and shortest. Starting from the online application to the disbursal, the process is completely online. As soon as the loan is sanctioned, money is available to you in minutes. If you are an existing customer of a bank, loan processing becomes easier.
- Flexible repayment options– You don’t have to make a one-time payment to repay the loan. The loan amount is repaid with easy monthly installments at a specified rate of interest. The tenure ranges from 1- 5 years that differ from bank to bank.
- Quick disbursals– Unlike home loans, minimum formalities and documentation are required in the personal loan process. If you are an existing customer, your KYC documents and bank statements are already submitted to the bank. Hence, a personal loan gets disbursed within a day and the amount is credited into your account instantly.
- Special loan features– Apart from the urgent personal loan and attractive rates of interest, banks, and NBFCs offer special features to the borrowers applying for a personal loan. The borrowers can opt for Flexi loan facility, sanction and pay from anywhere for existing customers, interest rate waiver, etc.
What is the Rate of Interest Charged?
As personal loans are unsecured loans, the interest rate charged is much higher than for home loans. The personal loan rates range between 10% to 22% p.a. Some other factors also play an important role in determining the interest rate such as the tenure of the loan such as the repayment capacity and the credit score of the borrower. An individual with a personal loan for a longer tenure tends to pay a higher amount as interest. Individuals with poor credit scores and repayment history will be charged a higher rate of interest for a personal loan.
Tenure of Emergency Personal Loan
An individual applying for a personal loan online can choose tenure as per his or her repayment capacity. The tenure of a personal loan ranges between 1 to 5 years. The higher the tenure of a personal loan, the higher would be the interest payable. You can also make pre-payment to reduce the instalments or close the personal loan account.
Role of Credit Score for Loan Approval
Every individual has a credit score or CIBIL score based on your repayment history. The lenders have set a minimum benchmark of a credit score of 750 to sanction a personal loan. Individuals must focus on maintaining their credit score and avoid defaults. As soon as you make default in payments such as credit card bills, monthly instalments, or bouncing of cheque, your credit score gets adversely impacted. Personal loans with low CIBIL score can also be obtained but at higher rates of interest.
Guarantor for Emergency Personal Loan
Many lenders ask for a guarantor to sanction a personal loan when they are not sure regarding the repayment capacity of a borrower. If you are signing as a guarantor of a personal loan for an individual, you are taking the responsibility that he or she will not make a default. If he or she defaults in personal loans EMI, it will also adversely impact your credit score. Hence, think twice before becoming a guarantor for your friends, family, or acquaintances.