Personal Loan Basics: What You Need to Know
In this article, we are going to discuss the things you have to know about personal loans. Also, we are going to discuss how much a person can borrow, documents needed at the time of applying for a loan.
What is a personal loan?
A personal loan is a kind of unsecured loan which can be taken by an individual from a bank or NBFC. This loan is taken by most people so that they can clear all their payments at low interest. It is provided on key things like income of a person, the credit report of a person, employment history, and repayment.
Unlike a home or car loan personal loan does not need to have an asset as collateral. This is an unsecured loan and the borrower does not have to put anything up as security. You cannot put up gold or even your property to repay the loan if you default. Also, they cannot auction anything to the loan company to clear their debt.
The interest rate on a personal loan is higher than a car or gold loan as this is a very risky loan to give by the bank. However, like any other loan if you default in paying it back this will affect your credit score. This will create a problem for you when you apply for a credit card or any other loan in the future.
A personal loan once taken by the borrower can be used for anything that they want to. This can be used for the renovation of your home, fixing your car, marriage expense, etc. This can also be used to purchase appliances, prepare a family trip, and can also be used for children’s education.
How much can a person borrow?
How much can I borrow from moneylender and the bank is the main question. That is a common and very similar question that is asked by many people. It is asked at that time when all the people come together to see which loan they want to take. That means at the time of finding a company from which they can take a loan from.
The person needs to find the highest amount as it will depend on their need. If they need a short amount then they are likely to take it from a licensed moneylender. If they want a huge amount of money as a loan then it is ideal for them to go to the bank. The total amount will also depend on the income and the credit report of the person.
The amount will also depend on whether you are a salaried worker or you are a self-employed worker. This is calculated so that your EMI should not exceed more than 40% – 50% of your monthly income. If this happens then you will have a hard time repaying the loan and will default. Any existing loan which is taken by the person is also kept in mind while giving a personal loan.
For the salaried person, the amount is calculated on the total monthly salary of the person. For a self-employed person, the EMI is calculated based on the profit which they have gathered in a month.
Things that you need to know about personal loan
Below mentioned are some of the things which you need to know about taking a personal loan.
- Common purpose
The most common purpose for which a loan is taken is when there is an emergency. This means that a sudden medical emergency arrives and you need money for an operation or medicines etc. You can also take a loan if you are planning a wedding or you are going on a trip. You can also use a personal loan to pay off any remaining debts of the borrower. This money can also be used by a parent to pay the college fees of their children.
- No collateral
This means that in a personal loan there is no collateral kept. This means that the borrower does not have to keep any asset as security or collateral.
- Fixed amount
The loan amount usually depends on your need and also the income, debt, and credit score. The money is fixed on an amount like 30,000 to 150,000 by a licensed moneylender. You can get up to 30,000 to 400,000 amount of money as a loan from the bank.
- Interest and fees
The interest on a personal loan is always locked means that it never changes when decided. The fees cannot exceed more than 10% of the principal amount of the loan taken. The interest rate on the loan will usually depend on your credit score.
- Repayment periods
You will have to personally select the time you need to repay the loan amount. It can either be from 1 – 5 years for a licensed moneylender or 4 – 5 years from a bank.
How to apply for a personal loan?
If you want to get a fast personal loans then you can go to a licensed money lender to get the money. It will take a time of 5 minutes for the moneylender to complete the process and give you money. It is easier to get a personal loan from banks and also financial institutions than a moneylender.
The bank will ask you the reason for taking the loan as they can suggest a good loan for that purpose. With any other loan, you have to choose wisely and properly after reading the terms and conditions. You should also take some time to calculate the monthly payment yourself to see if you are getting scammed.
You can also do this trick and compare the prices you are being charged by a bank and a moneylender. A person should take a loan that is of less interest and payment rather than a huge amount. The process is very simple as you have to select where you want to take the loan from.
Then you will have to go to their office and make the fill out the documents accordingly. Then after the process is complete and approved you will be given the amount of money.