Nidhi and Medha were sisters, looking to set up their own bakery products venture. Their research showed them they could either apply for a business loan or get a Personal Loan to finance their venture. While they would need to furnish their venture details to get a business loan, a Personal Loan needed no such process.
Medha was employed as a tax consultant in a brokerage firm. Her monthly earnings averaged close to Rs 85,000. This provided the sisters with a steady cash flow. While Medha would focus on the numbers, Nidhi was free to work on the core business.
They realised they only needed a loan of Rs 6-7 lakh initially. A good chunk of this would be used for publicity, renting out space, and setting up logistics. Medha’s income from her job as well as prior savings would be enough to take care of their personal expenses. The overall state of finances was very healthy with a good credit record. So, upon enquiry, their lender offered them an instant loan at a 12% interest rate. This helped them cover the business expenses and kick-start their venture.
Medha and Nidhi are not alone. Many people are opening up to the idea of using a Personal Loan to finance their goals. But this gives rise to a question: Why do more people prefer to apply and use a Personal Loan?
Why do people prefer Personal Loans
There are many factors that make Personal Loans more attractive.
- Easy to get: Personal Loans are easier to obtain than many other types of loans.
- Flexible usage: You can use the funds in a variety of ways. You can use it to pay for a vacation or a medical emergency. You can use it to fund a wedding, renovate a house, and more.
- Quick process: It can take as little as three days to get approval for a Personal Loan. Just make sure you have all the necessary documentation.
- No collateral: Personal Loans are unsecured loans. In other words, they are not backed by any collateral. This helps reduce the documents required for your loan application or even the duration of the vetting process.
You can even apply for a Personal Loan from the convenience of your home. All you need to do is visit the lender’s website. An application for a Personal Loan from Bajaj Finserv , for instance, usually takes seconds for approval and you can get funds of up to Rs.25 lakh in as little as 72 hours.
Eligibility criteria for a Personal Loan
One of the prime reasons for the preference for a Personal Loan is the easy eligibility. But remember, different lenders have their own eligibility criteria.
For new borrowers, lenders follow these Personal Loan Eligibility Criteria:
- Take-home salary or turnover: Lenders prefer salaried individuals with a minimum income of Rs 15,000 per month. It could be lower in the rural areas. For self-employed individuals, lenders prefer an income of Rs 30-40 lakh per year. This is the most important factor—it affects the amount of loan you can borrow.
- Age: For salaried individuals, it tends to be within the working age range. For self-employed individuals, the range is wider.
- Work experience: There is a minimum requirement of two years.
- Number of years living in the current residence: The minimum requirement is one year.
You can also use loan eligibility criteria calculators available on the websites of all lenders. Just fill in your name, years of service, salary, and place of residence to find out the loan amount you are eligible for. Alternatively, use these calculators to check what kind of monthly instalments you can expect to pay.
These tools make it easier to decide how much you can afford to pay every month. You can then select the quantum of loan that meets your needs.
It’s not just the eligibility. The actual application process is also very easy.
Personal Finance
Things to know before applying for a Personal Loan
1) The interest rates on Personal Loans depend on many factors. Some of these are:
- the prevailing rate announced by the Reserve Bank of India
- the concerned lender’s base rate
- the applicant’s relationship with the lender
- the CIBIL or credit score of the applicant
- the applicant’s credit history with the lender
- cash flows
- employment status
- salary earned by the applicant
- existing loans
2) You can negotiate the interest rate with the lender.
3) There is a loan processing charge. This varies with the lender from 1% of the loan amount to 3%. Service taxes are extra.
4) Employees of central government undertakings and public sector companies are seen as low risk. Some lenders even have a list of eligible companies whose employees are more likely to get loans.
5) The lender will ask for some documents for processing the Personal Loan application.
6) Some lenders may have a prepayment charge. This is when you pay a penalty if you pay the loan in advance. That’s not all. There are many other terms and conditions that have a bearing on the cost.
The bottom line
Personal Loans are popular today, but it is important that you opt for a professional lender to avail financing. Keep the various factors in mind when you apply for a Personal Loan and take the first step towards fulfilling your financial goals.