Loan Adviser

 What is a personal loan?

A personal loan is an unsecured loan that you can avail from banks, fintech companies and other non-banking financial companies. Although offered to all earning individuals for a wide range of loan amounts, personal loans are becoming a popular choice of finance among borrowers below the age of 35 and for finance below Rs 50,000. While the personal loan demand fell among the young borrowers due to the pandemic, millennial participation in the personal loan market increased from 27% to 41% in the last two years. The demand for small ticket personal loans had an annual increase of 162% by March 2020.

Statistics – CreditScape-Personal Loans Dec 2020 by CRIF High Mark)

What are the benefits of a personal loan?

Some of the major benefits of a personal loan include,

• A personal loan application process is quite simple and can be availed with minimal documentation.
• Most banks and NBFCs offer pre-approved personal loans which eliminate the need for loan application processing and eligibility checks.
• Personal loan repayment terms can be reasonably flexible, with a wide range of repayment tenor.
• A personal loan can be availed for any purpose. Unlike most other loans, a personal loan can be used to meet any financial need, be it travel plans, medical expenses, home renovation, debt consolidation or even a temporary cash crunch.
• A personal loan doesnʼt require any collateral security or pledging.

What is the eligibility criteria for a personal loan?

Among the commonly preferred eligibility criteria are,

• The borrower must be within a specified age group, which can be around 18-21 to 60-65 years.
• Predominantly offered to salaried individuals employed with recognised MNCs, public or private companies. Personal loans are also offered to self-employed applicants with proof of business existence, ITRs and other financial documents.
• The applicant must possess the required KYC and other documents.
• Personal loans are generally offered to residents of India only.
• Many lenders have minimum income benchmarks for personal loan approval.
• A specified number of years in employment or business existence is required.
• The CIBIL score of the applicant is also considered while accepting the loan and deciding the amount, interest rate and tenor.

What are the documents typically required for a personal loan?

The documentation required for a personal loan mostly comprises of identity, address and income-related documents like,

• KYC documents like Aadhaar, PAN, Voter ID, Passport,driving license etc.
• Employment Identity proof.
• Salary slips.
• Bank statements.
• Passport size photo.
• Income tax return.
• Proof of business (self-employed applicant).
• Financial statements (self-employed applicant).

Where can you use a personal loan?

There are a few important factors that you can consider while selecting a personal loan ideal for you. It includes,

• The amount of EMI that you need to pay every month. This will be determined by the amount of the loan, the rate of interest and the tenor of the loan. For a given loan amount and rate of interest, the EMI will be higher for a shorter loan tenor, and it will decrease as the tenor of the loan increases.
• The processing and disbursal time of the personal loan is important, particularly if the need is urgent. The lending process is generally faster in the case of account holders of the lender.
• The interest rate of the personal loan is an important factor as it will decide your cost of borrowing. Different lenders charge different rates of interest. However, the fluctuations in interest rate is influenced by the interest rate of the RBI.You can compare different lenders based on the rate of interest rate they offer.
• Apart from the interest rate, a loan can involve other costs like loan processing fees, stamp duty, credit assessment fees etc. Your overall cost of borrowing can increase if these incidental charges are on the higher side.
• Personal loans are easily available, but be careful in selecting the right loan amount. Excessive debts can inflate the EMI and affect your repayment capacity. Calculate the amount you need, the EMI that you will need to pay regularly and your existing financial obligations while selecting the loan amount.
• Understand the terms and conditions of the lender while availing of a personal loan. The policy on prepayment,acceptance of part-payment and foreclosure, redrawing of funds, services that are chargeable etc. are some of the terms and conditions typically found in personal loan documents.

Can you foreclose a personal loan?

Pre-closure of a personal loan can attract a pre-closure/ foreclosure penalty. Ideally, you should familiarise yourself with this charge while applying for a personal loan. You have to also check if your lender allows foreclosure or not.

• In case your lender doesnʼt have an online foreclosure option, you have to visit your nearest branch and fill the pre-closure form.
• You will have to submit your KYC documents, loan documents and bank statement reflecting the latest EMI payments.
• After submitting the form and the required documents, you can make the remaining payment by cheque demand draft or cash.

Home Loan Guide for First Time Home Buyers in 2023

Updated On - 29 Nov 2023

If you're one of the millennials, you'd know that owning a home has long since been the quintessential Indian dream. But in the 21st century, where an entire world's economy hinges on a volatile stock market, buying one doesn't come easy. If you are a first-time home buyer in particular, you need to be equipped with the know-hows of how a home loan works in the current scenario.

While the internet is already rife with plenty of guides to help you through a home loan process, the ones available simply aren't effective enough as they don't cover all the bases. However, you can count on this page to give you all the information you need. From the mundane to the magnificent, you will learn all that you need to about a home loan.

So, let's begin with the essentials.

Home Loan: What is it?

A Home Loan is basically a form of financial reinforcement availed of to fund the purchase or construction of a house. In the present times, a home loan can also be used to refinance an already existing home loan or simply reimburse the cost of buying a second-hand property.

What Is The Eligibility Criteria for a Home Loan?

All banks and NBFCs in India have their own eligibility criteria a prospective home loan buyer has to meet. Here's a list of the primary requirements.

1. You need to be aged between 18 and 60 years.
2. You need to be a salaried or a self-employed individual with a steady income.
3. You need to earn more than the minimum income quoted by the banks.

These three aspects qualify you for a loan. However, there are a few other factors on which your application hinges. They are:

1. Your monthly income: When you apply for a home loan with any lender, you need to prove to them that you have at least 50% of your income ready to serve the EMIs.
2. Other loan commitments: Having a high monthly income doesn't necessarily guarantee you a home loan. Also, if you are in the pursuit of repaying any other loans, the total loan amount you'll be eligible for will significantly decrease. This is why you need to make sure to clear every other loan commitment before applying for a home loan.
3. Your down payment capability: A lender never gives out the entire loan amount you've applied for. In fact, the most they will give you is 80% of the value of the property. The other 20% funds should be mobilised by you. If you are applying for a new home loan, you should make sure to have the down payment fund ready so that your application doesn't get rejected.

What are The Documents Required to Apply for a Home Loan?

Every home loan provider more or less follow the same documentation process before signing off on the loan application. Here are a list of documents you need to keep ready when you decide to take a home loan.

1. Fully filled and signed application form along with a photograph.
2. Identification proof and residence proof: For ID proof you can provide anything like your PAN Card and for residence proof, you need to provide a copy of your passport/driving licence or any of the latest utility bill.
3. Cheque for the processing fee.
4. Bank statements of the previous 6 months.

Besides these, there are also a few other documents you need to provide depending on whether you are a salaried or a self-employed professional.

Salaried professionals need to provide their pay-slips for the last three months along with their Form 16 or Income Tax Returns (ITR) filing.

Self-employed professionals, on the other hand, need to provide proof of education qualification certificate and proof of their business' existence. Apart from this they need to provide proof of ITR for the previous three years which should also include the computation of income. Lastly, they need to provide a CA audited/certified balance sheet and profit-loss account for the previous three years.

What Are The Things You Should Keep in Mind Before Applying For a Home Loan?

A home loan can be a massive burden if you don't consider all the details that go into it. Here are a few things you should keep in mind before applying for one.

1. Your Borrowing Capacity:You shouldn't opt for a higher loan amount just because you draw a bigger paycheck. Before applying for a home loan, you should carefully understand your borrowing capability. But, how can one exactly find out the loan amount they are eligible for? It's fairly simple.First things first, you need to keep in mind all the expenses you incur in a month. These may include your regular household expenses, travel, kids' fees, utility bills, pending loan payments, and miscellaneous expenses. Once you've listed down all these expenses, the amount you are left with is what you can use to make the EMI payments on the home loan.
2. Credit Score:You may not feel the importance of credit scores all that much, but it is the most crucial determinant of the interest rate you are likely to get. For a good home loan rate, you will need to maintain a credit score of 750 or above. Having a score such as this would endear a lender to you as they are less likely to be a liability for them. This will also help you get an interest rate which is a which basis points lower that what they officially claim.
3. Loan Tenure:Home loans can often go on for over 20 years, and up to 30 years, in the case of SBI. Analyse the loan tenure you've been offered and see if the tenure works out for you. If you think you need more room, negotiate a better term with the bank or reduce the total loan amount you have applied for instead.
4. The Terms and Conditions of The Loan:The terms and conditions you sign when borrowing a home loan is legally binding, which suggest that you have read all the terms and conditions laid out by the bank and comply with the offer. What you may not know, however, is that this is also one of the places where lenders tend to add draconian clauses and enforce them. So, avoid falling into such rabbit holes and make sure to go through all the clauses and sub clauses mentioned in the loan agreement before signing on the dotted lines.In the current market, purchasing a home is nothing short of an achievement. To make the best out of the situation always make sure to take a well-informed decision.