All You Should Know About Personal Loans Before Applying for Them
Usually banks give loans for important purposes like education, marriage business and so on. But a personal loan is something that you can use for a variety of purposes, basically for anything that you want. However, that flexibility comes at a price. Just like anything else, there’re pros and cons of personal loans too. Here we’ll take a look at all the information that that one must know about personal loans before applying for one. Let’s get started:
Personal Loans: What They’re?
A Personal Loan is an unsecured bank loan that doesn’t require you to present collateral security or a guarantor. It may sound unbelievable at first, but there’s a catch: the risks that banks take are always calculated. To understand this move on to the next section.
Limitations of Personal Loans
You can’t borrow too much under this loan. Banks carefully assess your repayment capability before approving your loan application. They check your credit rating, KYC documents and income proofs carefully before approving your loan application. As I said, banks always calculate their risks well.
Personal loan is given on the basis of your repayment capability. A lot of factors come into play to determine it, which include:
- Profession: The work you do is the first most important thing that can make or break your personal loan deal with the bank. A person doing government service or having a solid-business running from many years will get the loan with utmost ease. A person with a private job in any reputed company will get the loan slightly less easily. And a self-employed professional may have the hardest time getting it.
- Amount: The next thing a banker looks at in your loan application is the amount that you want to borrow. Though the maximum amount that anyone can borrow as personal loan is Rs. 10 lakh, the amount a bank allows you to borrow will depend on your repayment capability and it may be much less than this limit.
- Income: The amount you want to borrow is calculated against your income, so the income can be considered third most important thing for getting personal loans. Generally banks can allow you to borrow as much as twice of your annual income in personal loan. And yes, if you’ve a working spouse, you can also provide information about their income to increase your credibility.
- Credit Rating: Your credit rating also plays a major role in approval or rejection process of your personal loan. You can check it on CIBIL’s website.
- Education: The more educated you’re, the better your repayment capability in the eyes of bankers. The institutes you’ve studied at and the courses you’ve done also play a role.
- Age: The older you get, the tougher it gets. For obvious reasons banks don’t consider an old person for to be eligible to repay a loan, so getting a personal loan starts getting more and more difficult as your age increases.
While rates on personal loans range between 16% – 30% per annum, they tend to be flexible. They vary depending on your repayment capability, so you can ask a bank to adjust them for you. They’re more likely to entertain your request if your credibility seems high.
Advantages and Disadvantages
Based on the information given above we can easily identify the advantages and disadvantages of personal loans:
|Flexibility of use||High interest rates|
|No collateral/guarantor required||Strict approval criteria that often leads to rejection|
|Faster approval/rejection (often within 24 hours)|
Conclusion: Should You Get One?
In circumstances when you urgently need the money but don’t have any assets, personal loans can become your best allies. You should also use them to settle other debts if interest rates of those debts are higher than the rate of personal loan. However, you should be careful if you plan to get them for other purposes.