All you need to know about Personal Loans!

Personal loans are popular because of their easy availability. Now a days, taking a personal loan is just a click away. Be it a vacation, child education, medical emergency, home refurbishing or any other necessity, it comes handy during times of need. In simple words, it’s an unsecured loan taken by a person from a bank or non-banking financial company to meet his/her personal needs. Basically, it is provided on the basis of key criteria, such as repayment capacity, income level, credit and employment history. Unlike a car or a home loan, a personal loan is not secured against any asset. Besides, personal loans can be used for any personal financial need; it can be utilized for marriage related expenses, child’s education, renovating your home, meeting unexpected medical expenses, purchasing latest electronic gadgets or any other emergencies. Personal loans are also useful when it comes to down payment of new house, fixing your car and investing in business etc. Here is a low down on personal loans to understand them in a better way.

Eligibility Criteria for taking a personal loan -

The general criteria includes your income, occupation, age and the capacity to repay the loan and place of residence. This can vary from one bank to another bank. In order to avail a personal loan, you need to have a regular income source, whether you are a professional, salaried individual or a self-employed business person.

Key documents required when applying for a loan -

Though, the requirement of documents varies from one financial institution to another. Hence, below mentioned are some of the relevant documents needed when we apply for a personal loan:

1-      Address proof documents

2-      Identity proof documents

3-      Certified copies of license/degree (in case of self-employed people)

4-      Income proof, including salary slip for salaried and recently acknowledged ITR for self-employed.

Interest Rates: Usually, every bank has a different rate of interest for personal loans. Personalloan interest rates are generally higher than those on car, home or gold loans because of the greater perceived risk while sanctioning them. At present, NBFCs and many leading banks offer loans at interest rates of as low as 11.49%. However, the rate applicable to borrower is dependent on key factors, including loan amount and tenure, previous relationship with the lender, credit score and income level.

Loan Amount: The maximum loan amount can be 12 to 60 months or 1 to 5 years. Longer or shorter tenures are allowed on a case by case basis, but it is rare. The minimum loan amount varies from one institution to another. Most of the lenders have set their minimum personal loan amount at Rs. 30,000.

Tax Benefits:  Usually, personal loans have no tax benefits, but if in case you take one for down payment/home renovations, you are eligible for income tax deduction under section 24. Although, this tax benefit is only limited to the interest, not the principle amount. Moreover, you will have to furnish proper receipts to claim deduction.

Over and all, by keeping these above-mentioned points in mind, you can further plan to obtain a personal loan.

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