Personal finance is an unsecured credit facility that may be used for any legal purpose. This loan is often borrowed to meet cash requirements, such as medical emergencies, holidays, wedding or home renovation.
These loans are sanctioned quickly and require limited documentation. However, knowing more about these credit facilities before applying for one is beneficial. Here are two eligibility criteria you need to meet:
1. You must be aged between 21 and 60 years
2. You may apply for a personal loan either as a salaried individual or self-employed professional
Let us now look at four features of these loans:
1. Loan tenure
To ensure you do not face financial difficulties while repaying the loan, you may choose a loan tenure between 12 months and 60 months. Lenders provide flexible repayment schedules as per your financial situation.
2. Interest rates
Contrary to popular belief, the personal loan interest rates are not very high. Based on factors, such as your income, age and credit score, the rate of interest can vary
3. Loan amount
Most financial institutions offer such loans for a minimum amount of INR 50,000. In case you need additional cash, you may apply for a loan amount up to INR 10 lakh based on your disposable income. You could use a personal loan online calculator to check your loan eligibility.
4. Documentation required
You need to submit an application form and post-dated cheques along with an Electronic Clearing System (ECS) mandate. Additionally, you need to provide an identity and residential address proof. The lenders also require three months bank statement to determine your income eligibility.
Having gained an understanding of the features of personal finance, here are two primary costs associated with such loans:
1. Processing fees
These fees are levied to pay for the processing and approval of your loan application. Generally, financial institutions levy a processing fee of around 2% of the loan amount.
2. Foreclosure charges
Before the disbursal of the loan amount, the lenders calculate your Equated Monthly Installment (EMI) schedule. In case, you wish to repay the entire loan amount before the end of the loan duration, you may need to pay foreclosure charges on the outstanding principal amount.
Since personal loans are unsecured, you are not required to offer any collateral to the lender. This ensures you do not face the risk of losing your personal asset in case you are unable to make loan repayments on time. In addition, financial institutions do not require a guarantor, which makes it easier to avail of these loans.