Personal Loan

1. No Collateral – This is the most significant advantage of taking a Personal Loan. It is the most convenient option from the customer’s point of view. You do not need to mortgage an asset for taking a Personal Loan.
2. No end use requirement –You can avail a Personal Loan for any purpose. There is no compulsion on borrower’s part to disclose the use of funds. However, banks do take a declaration that you will not use the loan for speculative purposes.
3. Quick processing – These loans are available with out any security. If you satisfy the eligibility criteria, you get a Personal Loan approval in a short period. Certain banks give online approvals too.
4. Fixed Rate of Interest – Banks decide the rate of interest on personal financing at the time of processing the loan application. It remains fixed throughout its tenure. Hence, you need not worry about variable EMIs (Equated Monthly Instalments) or interest rate fluctuations.
5. Repayment flexibility –The average repayment period of a Personal Loan ranges from 36 months to 84 months. The more extended the loan repayment period, the lower the EMI. Individual financial institutions allow you to repay the interest amount alone every month with the arrangement of paying a pre-determined amount towards the principal repayment at the end of the year.
6. Tax benefits – If you avail a Personal Loan for renovating your home, you are eligible for Income Tax deductions up to  2 Lakhs under Section 24B of the Income Tax Act, 1961. However, you will have to prove that you used the loan for home renovation only.

1. The rate of Interest – The rate of interest on Personal Loans is between 11-14% depending on your credit score, income and so forth.
2. Loan amount – You can get a Personal Loan for as low as 50,000 and as high as  50 Lakhs depending on your requirement and eligibility.
3. Loan Tenure – Festival loans are available for periods as short as 12 months. The average tenure for a Personal Loan is between 12 and 60 months, depending on the loan amount.
4. Security – Due to its unsecured nature, collateral is not required
5. Loan Turnaround Times – A Personal Loan typically has the fastest turnaround time in the industry. Many banks approve Personal Loans with in 48 hours after submission of the online application.
6. Processing Fees – It depends on the individual bank. Itusually ranges between 1- 2% of the loan amount.
7. Pre-payment Penalty – Banks charge pre-payment penalty if you repay your Personal Loan before the determined period. The charges range between 1-2% of the outstanding amount on the date of closure.

1. Credit Score – This is the most crucial eligibility factor. A credit score of 650 or above is typically considered good score. The better your credit score, the higher are your chances of getting a Personal Loan.
2. Employment – Employees of listed companies, Central and State Governments, and public sector undertakings are eligible for a higher amount.
3. Work Continuity – You should be a long-term employee of your current organization. In case you are self-employed, the continuity of business and income is the most critical
4. Age of the borrower – The minimum age requirement is 21 years. Banks have their criteria for deciding the maximum age limit. In most cases, your age at the end of the repayment period should not exceed 70 years.
5. Who is eligible to apply – Salaried persons, self-employed professionals, and self-employed persons are eligible to apply for a Personal Loan.
6. Eligibility amount – It depends on the bank sanctioning the Personal Loan. Various factors like gross income, take-home pay, other loan installments, and Credit Card liabilities determine your eligibility. You can use Uplaxya Consultants Pvt. Ltd. (UCPL) easy Personal Loan EMI Calculator and determine eligibility.

he advantages of a personal loan are that they are relatively quick (because they do not require as much documentation as a home or auto loan); there is no restriction on how you can spend the money; personal loans do not require any collateral. So if you do not have any assets like a home, or shares or gold to offer as security, and are in need of money urgently, this is perhaps the most convenient option.

The main disadvantage of a personal loan is the higher interest rate, when compared to other loans. Since the lenders do not have any security against payment default, they charge high interest rates to cover their lending risk. Personal loans can work out to be one of the most expensive loans to take in terms of interest payments.

Your employment is also an important factor in the loan-approval process. Since personal loan customers do not provide any collateral, lenders need to make sure that you will have a steady monthly income over the loan period that will allow you to make regular repayments. That is why they pay particular attention to your employment status. They will look at whether you have stable employment and have been in the same job for a certain amount of time. Someone who has a history of frequently changing jobs might not be readily approved for a personal loan as it signifies that he/she might not have a stable or predictable salary over the loan period and might not be able to make regular payments. It is probably a good idea to be in a job for at least a year before you apply for a personal loan.
Your annual income is another significant factor. Again, since there is no collateral, the banks want to be assured that you have a sufficient income (from salary and other sources) that will allow you to make your monthly repayments. The higher your income, the better your chances of being approved for a personal loan.
Your EMI payment record is also of importance. Lenders will look at your credit report to check if you have consistently demonstrated financial discipline and a pattern of timely EMI payments. If they see that you have regularly made payments and fulfilled your debt obligations, they will be inclined to view your loan application more favourably.

The most important factors that determine if your personal loan is approved or not, are your credit score and your credit report. What does this involve?

The RBI authorises three credit rating agencies, or credit bureaus, to issue credit reports and credit scores. They collect and maintain records all your credit-related activity with banks, credit card companies and other formal lenders. The bureaus get reports on a monthly basis from these lenders on all your credit transactions. This includes information on your EMI and credit card payments (including any late or missed payments), balance outstanding, any change to your total credit limit, and all other details that are relevant to building your credit profile.

Based on all this data, a complex mathematical formula is used to calculate your credit score. The score is a reflection of your past and current credit behaviour and gives potential lenders a snapshot of your credit-worthiness. If you have a good track record of making all your payments in time and in full, your score will tend to be high. If you have a history of defaulting on payments or using excessive credit, it will have a negative impact on your credit score.