What Are The Personal Loan Terms and Conditions?

A personal loan is often the most accessible form of money to meet short-term expenses that are more than what one can afford with the regular income. These are unsecured loans and, therefore, one does not have to furnish any collateral.

These loans, apart from helping meet certain requirements, also have several spinoff effects. A loan reduces the disposable income of the borrower as one has to not just repay the amount borrowed but also interest and other charges associated with it.

It also has an impact on one’s creditworthiness as it pushes up the outstanding debt, creates or adds up the unsecured loan of the person and more.

As a result, it becomes important for a borrower to know the various personal loan terms and conditions.

Personal Loan Terms and Conditions

• Eligibility:

Personal loans come with basic eligibility criteria that cover a number of things. These include the age of the borrower, which varies from lender to lender. The minimum age for a personal loan applicant is usually 21 years though this can be 23 years for a few lenders. In the same vein, the maximum age is typically 60 years even though some lenders also advance money to senior citizens of age up to 80. Some lenders may also insist on the borrower being salaried or show some other proof of regular income.

• Documents:

The application form needs to be filled and the applicant needs to support it with some basic know-your-customer documents and proofs. These typically involve an identity and address proof, besides the PAN number. One should be careful not to misrepresent and only provide the latest information.

• Usage:

In general, a personal loan does not come associated with any restrictions on how the money can be used. But one should go through the terms and conditions to ascertain this so that one doesn’t run afoul of the agreement.

• Interest Rate:

The most critical aspect for servicing the personal loan is that the amount borrowed be repaid and not just the original amount availed but also the interest charge. So, the borrower needs to be careful in understanding the actual interest one is paying and should not get swayed by headline offers. The best way to cover for this is to separately check at an independent site how much EMI one is paying given the interest rate being touted in the offer.

• Tenure:

Another important factor in a personal loan is the loan tenure—the period during which the money has to be repaid along with all charges. Typically, for a personal loan this can be as much as 60 months or five years though some lenders may allow even a longer repayment period, depending on the loan amount.

• Partial Payment:

One can pre-pay a part of the outstanding loan if one gets a lump sum amount. This helps reduce the overall interest outgo. But lenders allow this only after the first three EMIs are paid. Lenders also have a condition that restricts how much one can pre-pay in a financial year. Moreover, some lenders may impose other conditions like the source of funds used for pre-payment should be the customer’s own fund.

• Missed Payments:

Although the terms of the loan are confidential between the lender and the borrower, if a person misses any scheduled payment of an EMI or other charges, the lenders report such cases to credit bureaus. This, in turn, affects one’s creditworthiness and may affect the credit score and as a result may negatively impact the ability to borrow and that too at a low interest rate in the future.

• Others Charges:

Personal loans do not just come tagged with the need to repay both the principal amount borrowed and the interest charge as agreed. There are some other charges such as loan processing charges. There could be other charges such as a pre-payment fee and a foreclosure fee, which are a percentage of the loan amount being pre-paid.

Conclusion

A personal loan is often a saviour for individuals when they find themselves in a situation where they need to spend more than what they have in their bank or in the form of cash at home. But there are various aspects that come into play while availing such a loan—be it the terms of the actual loan, how and by when one can pre-pay the money, other fees and how the loan will impact the creditworthiness in the form of credit score. The borrower needs to be fully aware of the various terms and conditions and risk factors based on their actions before and after availing the personal loan to avoid unnecessary charges later on.

IIFL Finance offers personal loans from as low as Rs 5,000 to Rs 5 lakh on a reducing balance interest rate that starts at as low a level as 12.75% per annum. The company offers personal loans for tenors ranging from three months to 42 months, without the need for any collateral.