The number of people taking personal loans is currently rising, reflecting a healthy economy. As the economy grows, people want to get money for the increasing and big upcoming expenses. However, before taking a personal loan, you need to understand everything about them to ensure it meets your needs.
What’s A Personal Loan & How Does It Work?
Personal loans are loans that you take to use for any purpose like debt consolidation, tuition, medical bills, personal improvement projects, or vacations.
Most personal loans are unsecured, so lenders do not ask for any collateral to secure the loan. However, there are a few lenders who offer secured personal loans. Because of their unsecured nature, personal loans have higher interest rates than other types of loans like car and home loans.
Also, there are minimal document requirements, unlike other loans, and the approval process is faster.
Benefits Of Personal Loans
- You do not need to give the lender any security or collateral. Most lenders look at your repayment capacity and credit history.
- Minimal documentation.
- Quick and easy loan disbursement.
- They have a fixed interest rate over the loan term.
- Flexible tenure between one and five years, and you can choose your term depending on the repayment plan.
- You can use it for anything.
- Easy EMI facilities that can assist you in repaying the principal over the loan tenure.
Eligibility Criteria For Personal Loans
Since personal loans are unsecured, banks conduct a thorough background check to determine your repayment capabilities. Some of the factors they consider to determine if you are eligible or not include:
Credit score- This score lets the bank know about your history as a borrower. The higher the credit score, the higher your chances of getting the loan.
Age limit- You have to be between 21 and 58 years if you are employed, but you have to be from 25 to 65 years if youare self-employed.
Monthly income- Different banks have different minimum monthly requirements, so you have to ask at the bank from which you apply.
Nature of employment- The basic employment types banks look at include self-employment, salaried employment, and professionals.
Employment history- You will have low chances of getting a job if you have had over five jobs in the previous year. You have to have at least a year of experience from one job over the past year.
Documents Required For Personal Loans
- Form 16 and salary slips
- Income statements
- Latest income-tax returns
- Bank statements
- Address proof documents like electricity and telephone bills
- Age proof documents like a passport or ration card
- Photo identification proof
Personal Loan Interest Rates
Personal loans have high interest rates. Different banks have different interest rates, but the current rate is between 10 and 15%. It also varies depending on your credit score, loan tenure, existing loans, type of loan you take, and income level.
SoFi makes way for you to compare interest rates seamlessly. Compare interest rates from different lenders to get the lowest interest and save thousands of dollars on interest with personal loans from SoFi.
Personal Loan EMI Calculator
This helps you know the monthly installments for your loan repayment.
EMI= EMI=(P x R x (1+R) n)/ ([(1+R) n-1])
P= Principal
R= Interest rate
N= number of monthly installments
Types Of Personal Loans
- Wedding loan
- Festival loan
- Vacation/ holiday loan
Steps To Apply For A Personal Loan
- Know how much you need
- Decide the type of loan you want
- Have a repayment plan
- Keep the necessary documents ready
- Compare different loan deals
- Choose the best loan and apply
When borrowing a personal loan, you have to be careful about the amount you choose and look at your financial abilities. It would help to compare different lenders to determine the one with the best terms and interest rates.
