Personal loan is something that is widely available in India provided your documents are intact. In fact, it is your bank that is waiting in the wings to offer you a loan.
So much so, that some banks are offering account holders/customers instant approval of personal loan.
They are in competition with each other to woo customers to take loans.
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| Customs during an Indian wedding. Wedding expenses fall under personal loan. |
Ideally, a personal loan is utilised, to say, buy electronic appliances, go on a holiday or even for a wedding of a family member. This loan basically has a wide usage.
A personal loan is classified as an unsecured loan by banks and financial institutions or FIs (non-banking financial companies or NBFCs) to meet personal expenses of people.
Features of personal loans in India
The lowest personal loan interest rates begin from 9.6 per cent per annum.
There may be additional fees like processing fee, among others. It may range from Rs 500 to 2.5 per cent of the loan amount.
You can get flexible tenure from 12 to 60 months to repay your loan.
There is an option to submit an online application and get instant loan approval.
Personal loans can serve purposes such as marriage expenses, medical emergencies, shopping or even travel.
One good feature about personal loans is that they do not require any security or collateral.
But the amount given is usually below Rs 10 lakh (Rs 1 million). It could range from Rs 10,000 to even Rs 50 lakh (Rs 5 million) (under exceptional circumstances like good financial standing and excellent credit score).
PREPAYMENT PENALTY: Banks usually charge a prepayment penalty if you opt to pay your loan before the payment term ends. The charge in this case could be 1-2 per cent of the outstanding dues.
BEWARE: There may be some apps or FIs that offer high loans and do not ask for or verify your documents. Avoid taking personal loans from them. Before taking a loan, ensure that the financial institution is Reserve Bank of India-approved.
Types of personal loans
Some of the types of personal loans are:
Wedding loan: Weddings in India mean a whole lot of planning and huge expenditure. Many lenders offer this type of loan to families of the bride or groom to meet the astronomical expenses like buying of items such as saris and other goods, booking the wedding venue and catering expenses, among others.
Festival loan: Festival is the time when people give their children and relatives clothes and host parties. Many FIs are waiting in the wings to offer loans to meet these expenses.
Travel loan: These days, travel has also become an expensive affair. A short vacation could cost you an astronomical Rs 30,000 or above. And, long-duration holidays may lighten your pockets by over Rs 1 lakh (Rs 100,000). You can avail these loans and pay back through easy equated-monthly instalments (EMIs). An added benefit of this loan may include additional travel insurance.
Consumer durables loan: This type of personal loan can be availed for buying appliances or consumer durables.
Pension loan: Pension loan is when retired people can fulfil their financial needs such as paying for their medical expenses and meeting daily requirements.
Home renovation loan: These loans are for the purpose of renovation and repair as well as buying material to repair a house along with other home-related expenses.
Computer and mobile phone purchase loan: Many lenders, especially after the Covid lockdowns, have started offering loans to buy computers, laptops or smartphones. Insurance can also be availed with this loan.
Personal loan rates
Personal loan rates of some Indian banks*:
ICICI Bank: Rates range from 10.5 per cent to 19 per cent (per annum).
HDFC Bank: Rates range from 10.5 per cent to 21 per cent.
State Bank of India: Rates range from 9.6 per cent to 15.6 per cent.
Bank of India: Rates range from 10.35 per to 12.35 per cent.
Axis Bank: Rates range from 10.5 per cent to 24 per cent.
Kotak Mahindra Bank: Rates range from 10.5 per cent to 24 per cent.
Bajaj Finserv: Rates range from 13 per cent onwards.
Federal Bank: Rates range from 10.5 per cent to 17.5 per cent.
IDFC First Bank: Rates range from 10.5 per cent to 18 per cent.
Indusind Bank: Rates range from 11 per cent onwards.
From this list, it seems the best rates are offered by State Bank of India and Bank of India.
*Please check with banks for latest updates
Personal
loan calculation
SCENARIO 1: Rs 5 lakh @ 10.5% interest
Loan amount: Rs 5 lakh (Rs 500,000)
Duration: Five years
EMI: Rs
10,747
Total payment: Rs 6,44,817 (Rs 6.45 lakh)
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SCENARIO 2: Rs 5 lakh @ 18% interest
Loan amount: Rs 5 lakh (Rs 500,000)
Duration: Five years
EMI: Rs
12,697
Total payment: Rs 7,61,803 (Rs 7.62 lakh)
----------------------------------------
SCENARIO 3: Rs 10 lakh @ 9.6% interest
Loan amount: Rs 10 lakh (Rs 1 million)
Duration: Five years
EMI: Rs 21,051
Total payment: Rs 12,63,046 (Rs 12.63 lakh or Rs 1.26 million)
----------------------------------------
SCENARIO 4: Rs 10 lakh @ 20% interest
Loan amount: Rs 10 lakh (Rs 1 million)
Duration: Five years
EMI: Rs 26,494
Total payment: Rs 15,89,633 (Rs 15.9 lakh or Rs 1.59 million)
----------------------------------------
Documents required for personal loans
Documents that may be required for taking personal
loans are:
KYC (know-your-customer) documents: These include PAN
card, Aadhaar card, driving licence, passport, voter ID card or registered rent
agreement document.
Income documents (salaried): One or more documents
like salary slips of the last six months, IT returns of last two-three years,
bank salary account statement for the last three months or a salary certificate
from the employer.
Income documents (self-employed): One or more
documents of financial statements like profit and loss statement and balance
sheet for one or two years and IT returns for the last two-three years. Also,
current account bank statements for the last six months to indicate continuity
of business. And, proof of goods and services tax (GST) registration.
Other documents: Personal loan application form,
processing fee cheque and other cheques along with passport size photographs
(up to three, normally).
Conclusion
Personal loan options in India are multiple, and in
the future, it seems that even without a proper credit standing, banks and FIs
could be in a rush to offer attractive loan schemes.
READ ALSO | Advantages and disadvantages of personal loans in India
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