If you are reading this article, chances are that you are in need of a personal loan. You are about to make a good choice! Many will try to dissuade you from taking a loan but read on to know more about personal loans and how they can help you in times of financial need.
When people take personal loans…
Those who own assets (both movable and immovable) can take loans against them. If you have a house, you can take a mortgage loan against it. If you have a home loan, you can take an equity loan or a top-up loan to meet the shortfall. Meanwhile, if you have investments, you can borrow against those securities. There are myriad loan options for you to try – if you can furnish the owned securities as collateral.
But if you do not have a property or investments to your name, the only option left for you to raise money for a personal need is to borrow a personal loan. Though friends and well-wishers will dissuade you from taking a personal loan, there are many advantages to doing this. Consider the most significant ones as follows:
- You do not furnish any surety against the loan.
- There is no need for a guarantor.
- Your bank might already have a pre-approved personal loan waiting for you, so the paperwork is processed faster. The paperwork is often simple and straightforward.
- You can use the money for whatever purposes you need. The bank does not concern itself with the purpose of borrowing the personal loan.
But you must also consider that…
- Since this is an unsecured loan, the lending institution has a strict vetting process per applicant. In essence, you are putting yourself up as a security. The bank can only verify your income and credit credentials, in the absence of other securities. This is the reason why many personal loan applications are not approved. But if you have a regular source of income and a good credit score , there should be no problem in your application being approved.
- The interest rate on personal loans is quite high, higher than home loans, mortgage loans, top up loans and vehicle loans. Again, this is because it is an unsecured loan product. Currently, interest rates on personal loans are in the range of 16% to 22% in India. The higher rate of interest is meant to safeguard the lending institution in case you default on the loan repayment. You can certainly get a loan on a low credit score, but the interest will be higher. 
- Your personal loan eligibility is the most important factor in the loan approval process. The loan eligibility is decided basis the applicant’s credit history, monthly income, place of employment, loan amount sought and also the city of residence.
- Your bank may have its own upper and lower limits for the personal loan. Some banks offer at least Rs 25,000 and a maximum of Rs 10,00,000, while other personal loans are offered at a maximum of Rs 5,00,000. It is better to analyse your exact requirement and approach your bank with the specific number you have in mind.
- Your bank may offer one of two interest rate types: monthly reducing rate or a homogeneous rate. In the former, the interest is calculated on the reduced principal (with successive EMIs being paid, the principal amount is reduced) while in the latter, the interest rate remains the same no matter how much of the principal has been repaid. The monthly reducing rate is preferable since you repay less money to the lending institution.
Finding the best personal loan product
Doing your research across banks and financial institutions will help you find the best loan. You need to find as much information about the personal loan as you can, so that you can find the best interest rates, the most flexible repayment terms and a loan amount as close to the one you desire.
Using a personal loan calculator helps in this regard. While you can research more about top personal loans in India on the Internet, using an online loan calculator helps you compute the numbers that are involved in the loan process. For instance, you can find your personal loan eligibility and also the monthly EMI payments you will make for a certain rate of interest and principal amount. 
When you use the online loan calculator to know about personal loan eligibility, you must enter these details on your bank’s website:
- Loan amount
- Where you work
- Your monthly income
- Amount of annual bonus
- City of your residence
- If you have a credit card
- If you have any existing loans
The personal loan calculator helps you recalibrate your finances in case you are not eligible to get the loan amount you actually want. However, the figures shown by the personal loan calculator are not the exact figure you will get from the bank, but the closest approximation. It is always better to discuss your loan requirement and the final figures with your bank.
Making the personal loan application
The best banks in India today facilitate personal loan applications online. You can apply for the loan by filling out a short form on the bank’s website. After this, the bank sends the personal loan application form to your email ID. You can fill it out and send it online with the supporting documents required, or you can go to the nearest bank branch to complete the formalities. Normally, the personal loan application is approved quite quickly and the loan amount is also disbursed faster than other loans.
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