Answering FAQs On Your Personal Loans

Have you ever dreamt of taking a foreign vacation to, say Europe or Australia and New Zealand, but postponed your plan for lack of money? Well, big dreams need big expenses which, at times, can be financially challenging. In such situations a personal loan can help us achieve these dreams. Not only that, a personal loan can be availed to cover medical treatment, wedding, home renovation, relocation and even for debt consolidation.

A personal loan is an unsecured loan offered by banks and non-banking financial companies (NBFCs) to customers to fulfil their personal needs. Personal loans can be secured, too, if backed with collateral. The loan amount borrowed from the lender is returned in regular installments with interest. Timely repayment of loans helps to boost the credit score and improves chances of future borrowing.

Here are some Frequently Asked Questions (FAQs) on personal loans that can help a prospective borrower make an informed decision.

What Is The Minimum and Maximum Amount Offered For Personal Loans?

The minimum and maximum amounts that can be borrowed in personal loans vary from bank to bank. Some lenders offer personal loan for a minimum amount of Rs 15,000 and for a maximum amount as high as Rs 40 lakh. The loan amount sanctioned also depends on the credit history, income and repayment capacity of the applicant.

What Is The Interest Rate On A Personal Loan?

The interest rate ranges from 10% to 35%, or even higher. The interest rate varies from lender to lender and depends on a number of factors, including the borrower’s credit score, loan amount and loan term.

Do Personal Loans Have Fees?

Other than interest, lenders may charge a one-time fee that they subtract from the personal loan to pay for administration and processing costs. The processing fee is charged when the loan gets disbursed. Usually, this fee is between 1% and 5% of the total loan amount, but sometimes it is charged as a flat-rate fee.

What Is The Maximum and Minimum Tenure For A Personal Loan?

While the maximum tenure for a personal loan is generally six years, the minimum tenure is 12 months. A longer loan tenure is usually taken by borrowers with low monthly income or when the borrowed amount is high.

How Does One Repay The Loan Amount?

Repayment of personal loans is through EMIs, or Equated Monthly Installments. It consists of the principal portion of the loan amount and the interest. The amount is debited directly from the customer's bank account. For this the customer needs to give an Electronic Clearing Service (ECS) mandate in favour of the lender.

It can also be deducted directly from the customer’s debit card. For this, borrowers must provide relevant details of the debit card from where the EMI amount will be deducted on the due date.

How Is The EMI Calculated?

The EMI is based on four things, namely the loan amount, loan tenure, interest rate and amortisation details. While offering loans, lenders inform borrowers of the interest rate that is being offered. It is an annual interest rate and is divided by 12 to get the monthly interest rate.

An easy way to know the EMI break-up is to use the EMI Calculator. Once details of the loan amount, rate of interest (along with the processing fees, if applicable) and tenure are provided, the online calculator automatically displays the result.

How To Reduce EMI On A Personal Loan?

It is advisable to maintain a credit score over 750 as it helps to get a lower interest rate, and thus lower EMI. Banks may reject loan applications of individuals with a very low credit score. Those with a moderate credit score may be offered loans, but at a high interest rate. Sometimes a good relationship with the bank can also help get a better interest rate.

What Documents Are Required For A Personal Loan?

Lenders need some supportive documents from borrowers at the time of evaluating the loan application. These include identity proof (both photo ID and age proof), residence proof, and the filled application form. Salaried individuals also need to submit salary slip of the last three months and last six months of bank statements. Self-employed individuals need to provide income tax returns for three years and audited balance sheet and profit and loss accounts for three years.

Can The Loan Be Prepaid?

Most personal loan providers allow borrowers to repay their loan before completion of the agreed tenure, but before initiating the pre-payment process borrowers must intimate the bank. Some lenders may levy pre-payment charges. It can either be a flat amount or a percentage of the total loan amount.

How Long Does It Take To Disburse A Personal Loan?

Usually, lenders take 2-5 working days after borrowers have submitted the complete set of documents to disburse a personal loan. But it must be remembered that the approval and disbursal is at the bank’s discretion. Also, it depends on the borrower's eligibility and other factors.

Is A Balance Transfer Of Personal Loans Possible?

A personal loan balance transfer is opted by customers to get a lower interest rate on the outstanding loan amount. It can be done by switching the current loan account to another loan within the same bank or a new bank. However, only some banks have this facility. Also, the rules, procedure and policies of balance transfer vary from bank to bank.

Conclusion

Personal loans can help you achieve many of your goals. But before taking out a loan, you should be clear about the things explained above.

If you do decide to take a personal loan, do so only from a well-known and reputed lender such as IIFL Finance instead of some local moneylender. IIFL Finance offers personal loans through a fully online application process that can be completed within minutes. The company also customizes the loan products and offers affordable interest rates to make it easier for borrowers to repay the debt.