Personal Loan

Features and Benefits of Personal Loans

Given below are some of the features and benefits of personal loans:

• No Security Required: Individuals do not have to provide any security or collateral for availing of a personal loan. This loan is usually approved on the basis of the applicant's creditworthiness. This depends on the credit score, employer reputation, credit history, and repayment capacity.
• End-Use Flexibility: One of the most impressive features of a personal loan product is the flexibility in end-use. These loans can be availed to meet several expenses, such as home renovation, medical expenses, travel, etc. 
• Flexible Tenures: Usually, lenders offer loan products with flexible repayment tenures ranging from 12 months to 60 months.
• Hassle-Free Documentation: Individuals can make personal loan applications online as well as offline. The documentation process is comparatively quick and hassle-free. Some of the key documents that you must submit for a successful application are identity, income and address proof documents.
• Quick Loan Disbursal: The personal loan amount can be deposited in the applicant's bank account within just a few hours of application processing. In the case of pre-approved loan offers, the turnaround time can be even lower.
• Flexible Approved Amount: The personal loan amount approved for the applicant depends on their repayment history, age, profession, income, employer's reputation, and other such factors. Usually, lenders offer personal loans ranging from Rs. 10,000 to Rs. 40 lakhs.

In today's ever-changing financial environment, it is not uncommon for people to avail of a personal loan to meet their financial needs. One of the major reasons that people prefer a personal loan is that it is an unsecured line of credit for which the individual does not have to provide collateral. Anyone can obtain a personal loan from any bank or NBFC of their choice by just submitting the application and supporting documents.

Once the application is approved, the loan amount is disbursed in the applicant's bank account in less than 48 hours. Lenders usually sanction the loan application on several criteria, like repayment capacity, employment history, credit history, income and profession. These loans are also referred to as multi-purpose loans, as they can be availed to meet any of the immediate requirements.

Personal Loan Eligibility Criteria

The table given below details some of the basic eligibility requirements for obtaining a personal loan in India: 

Age	21 years to 68 years
Employment Type	Salaried Business Owners Student Retired Home-maker Self-employed professionals
Employment Status	Should be employed or in business for minimum 2-5 years
Minimum Monthly Income	Over Rs. 5,000
Work Experience	1 to 3 years and above
Credit Score	750 or more
Maximum Existing EMI	Less than 65% of monthly income

Factors Affecting Personal Loan Interest Rates

When you make repayments for a personal loan, you are required to pay a certain amount of interest as a part of your EMI payments. This amount depends on the interest rate you are charged for the loan. Given below are some of the factors that affect your personal loan interest rates:

Income

Your income is the basic component of what determines your personal loan interest rate. It is viewed as the universal truth that financially sound people with higher disposable income have a better repayment potential than people with lower income. Usually, people with higher and more stable incomes receive the lowest interest rates on their personal loans. On the other hand, people with bad financial histories are more likely to get higher interest rates.

Credit History

Credit scores play a crucial role in your personal loan approval. In the case of personal loans, it not only determines your eligibility but also affects the loan interest rate. Usually, credit scores are a reflection of the financial history of the individual in terms of existing debt, income, repayment history, and borrowing pattern. A higher credit score increases the lender's trust in the borrower's financial behaviour, even granting them loans at lower interest rates.

Employer's Status

Since personal loans are generally unsecured lines of credit, lenders verify a number of factors that establish the borrower's creditworthiness. Your employer or the company you are employed in plays a key role in it. This is because applicants being employed by a reputed organization are viewed as being more financially stable and capable of making timely payments. Such applicants may also get better lending terms and conditions. 

Debt-to-Income Ratio

Let's assume that the applicant is employed in a renowned organization and earns a high salary, but the majority of the applicant's income is diverted towards debt repayment. In such cases, the volume of the existing debt is sure to have an adverse effect on the personal loan interest rates.

A debt-to-income ratio can basically be defined as the ratio of all existing debts divided by the total income. Having a high debt-to-income ratio generally means that the applicant is already under high repayment debt, and the lender may charge a higher interest rate.

Rapport With the Lender

If the applicant has been a trusted and loyal customer of the lender, they might get a preferential interest rate. This is because a long and constant relationship might inculcate a sense of inter-dependability. This trust is simply not built overnight, it requires a long period of trustworthy and responsible behaviour on the part of the customer. The better the relationship, the more the chances of getting a loan on favourable terms. 

Default History

Similar to how a credit score works, if a lender finds a history of default in the applicant's credit report, it might lead to higher interest rates or even application rejection. Usually, lenders sanction loans to the applicant's with no defaults over the last 12 month period.

Documents Required for a Personal Loan Application

We at Urban Money are dedicated to making your loan disbursal process as easy and smooth as possible. You will need to submit a few documents to complete your loan application process. The process is not very paperwork intensive, however, the documents differ for salaried and self-employed individuals. Let's take a look at the documents required for both these cases:

Common Documents

Given below are some of the common documents required for completing a personal loan application:

• Identity Proofs: Voter ID, Passport, Aadhaar Card, Driving License.
• PAN Card.
• Signature Proofs: PAN Card, Passport, etc.
• Address Proofs: Ration Card, Rent Agreement, Passport Copy, Aadhaar Card, Utility Bill, Voter ID Card.
• Bank account statement from last six months.

Salaried Individuals

Given below are the documents required for salaried people to complete their personal loan application:

• Salary slips from the last 3 months.
• Form 16 or ITR returns.

Self-Employed Individuals

Given below are the documents required for self-employed people to complete their personal loan application:

• P&L account and balance sheet from the previous 2 years.
• ITR from the last 2 years.
• Business Proofs, like GST Number, Registration Certificate, License.
• TDS Certificate, Income Tax Challans or Form 26 AS for declared income in ITR.