A personal loan can help you realise
many short term and long term dreams. In the absence of adequate savings, you
can always fall back on a personal loan.
Life
is a crazy ride, full of ups and downs. It is a series of phases, the good
following the bad, the unexpected following the expected. One can never truly
predict what the next turn will bring, or whether one will be taken by surprise
sooner or later. The old adage ‘Nothing is constant except change’ holds true
in terms of the lives we lead!
The
same applies to the state of our finances. Despite the most careful planning,
there are days when we are short of funds to finance the smallest of expenses.
Or our investments that we were most counting on, go awry and we lose a lot of
money in the process. Or there comes a time when we need a large sum of money
quickly, but we don’t have the means to raise it.
But
just like there are problems, there are solutions. In terms of one wishing to
have more money but not able to accumulate it at once, the solution is to apply
for a personal loan.
What is a personal loan?
A
personal loan is a sum of money that one may get from their bank, in lieu of
their income, age and credit history. The personal loan interest rates are normally
higher than other loan products such as home loans. This is because a personal
loan is an unsecured loan, i.e. there is no collateral that the applicant
furnishes like in the case of a secured loan, such as a home loan. Thus, the
loan’s veracity and repayment is dependent only on the individual’s income
profile and repayment behaviour, in the absence of collateral.[1]
Normally,
the interest rates for personal loans are over 11%. The best personal loans in India
today are available for personal loan interest rates ranging from 12% to 19%,
for a minimum loan amount of Rs 50,000 and a maximum of Rs 20 lakh. The tenure
may range from three months to 60 months.
The
bank or financial institution lets you apply for a personal loan basis your
eligibility, credit history and repayment capability. The lending institution
normally does not concern itself with how the applicant intends to spend the
money borrowed.
So what can you use the personal loan for?
There
are many uses that you can put the loan amount to. Sample just a few of the
many uses of a personal loan[2]:
- Children’s education, wedding expenses
- House remodel
- Making a down payment for a new house purchase
- An expensive acquisition for the house – large plasma TV with home theatre, for example
- A month-long foreign trip with the family
- Setting up a small business
- A medical emergency
- Repaying an old debt, etc.
Thus,
there is no limit on how you can use the personal loan money. The only thing
you need to watch out for is to repay the loan as mutually agreed upon with the
bank, so as to not fall prey to penalties and higher rate of interest at a
later date. Defaulting on personal loan repayments can also ruin your credit
history, making it difficult to borrow any other loans in the future.
How to apply for the personal loan
Applying
for a personal loan
is fairly simple – depending on your bank – and in many cases, you can even
apply for it online.
- Start by checking your personal loan eligibility. It is computed basis the following factors[3]:
- Any existing debt in your name – home, car, credit card loan
- Your age
- Monthly income
- Desired loan amount
- Credit history
- Once you find out how much loan you are eligible to get, you can check the bank’s personal loan interest rates[4].
- Now that you are cognisant of the interest rates, apply for the personal loan. When doing this online, you just need to fill out the application form provided by your bank and upload the supporting documents asked for (income proof, residence proof, age proof, bank statements, IT returns, etc.)
- Depending on the bank, the loan application is now perused and the loan is approved if all details are found correct. The bank will provide you with a transaction ID that you must quote when checking the status of the loan. The loan may be disbursed in just a few hours if it is pre-approved.
Be sure to…
…Follow
a regular repayment model. The monthly loan instalment (EMI) is auto debited
from your bank account on a pre-decided date every month. You must ensure that you
have sufficient account balance to pay the EMI.
…Not
quit your job while you are repaying the personal loan, or if you quit, to
engage in new employment shortly. The loan is granted on the basis of your
income, and a lack of income can set back your repayment. After several rounds
of payment defaults, the bank is free to prosecute the loan holder.[5]
…Apply
for a personal loan transfer to another bank that is offering the same product
for a lower rate of interest. You can keep a tab on the personal
loan interest rates
being offered by various banks, as also the processing fees they charge before
effecting the transfer. You are free to pre-pay the loan even after
transferring it to another bank.
[1] https://www.nerdwallet.com/blog/loans/credit-card-personal-loan/
[2] http://tips.thinkrupee.com/articles/personal-loan-advantages--disadvantages.php
[3] http://www.moneycontrol.com/news/business/personal-finance-business/-2086633.html
[4] http://www.idfcbank.com/personal-banking/loans/personal-loan.html
[5] http://www.lawyersclubindia.com/forum/Credit-card-and-personal-loan-default-75039.asp
