What is a personal loan?

Personal Loan  Updated date : January 6, 2018 100

A personal loan is also known as an emergency loan. Banks don’t ask you the purpose of the loan . You can pretty much avail this loan for any need. A personal loan is unsecured (You don’t have to give a collateral/security) to avail this loan. This means you have to pay the bank a very high interest rate (10-15%).

Earn good income?

If you draw a good salary you can avail a personal loan at a cheaper interest rate than if your salary is less. If you draw a salary of around INR 30000-35000 you have to pay a higher interest rate on the personal loan. Your interest rate may be as high as 15-20%.If you draw a salary over INR 50000 the interest rates can be much lower at 14-16%. A salary of over a Lakh means you get to pay an interest of only 12-13%.

Which company you work?

If you work for a reputed Company you can avail a personal loan at a lower rate of interest. Banks have a list of Companies (Reputed Companies) and if your Company name is on the list you get a loan at a lower rate of interest.

Your cibil score

A personal loan is unsecured (without a collateral or a security). This means banks are very careful before sanctioning this loan. Banks check your Cibil trans union score before sanctioning your loan. This is a score between 300-900 and a score above 700 is considered good. If you have defaulted or fallen behind in your repayments on earlier loans then your Cibil score will be low. Repay all past loans before availing a personal loan.

Do you need a bank account with the same bank?

If you have a bank account or a fixed deposit with the same bank where you avail the personal loan, then the bank will sanction your personal loan at a bargain interest rate. You have a relationship of trust with the bank, which you are expected to honor with prompt repayments of the EMI’s on the personal loan. If you pledge your gold, shares or a life insurance policy with the bank, you will be able to avail a personal loan at a cheap rate.

Personal loan is a type of loan used by the people for meeting the needs of the family members and also for their own needs. Example: To pay personal expenses, go on a vacation, purchase any asset etc.

Personal loans are especially designed for people who don't want to go through the hassles of providing security.

Salient features of Personal loan:

1. Personal loans are unsecured loans i.e the loan doesn't require you to use an asset as collateral or guarantee.
 
2. Personal loan is a short tenure loan. Most of the banks provide you loan for maximum 3 years (36 months) to max 5 years (60 months).
   
3. Personal loans usually have fixed interest rates.
   
4. The amount of personal loans ranges anywhere from Rs. 20000 to Rs. 20 Lakhs and depends on person's credit rating. (Ability to pay)
   
5. Documents required to get a personal loan are proof of identity, residence, income proof / Income Tax Returns of last 2 years. After verification of the documents the borrower's credit score is checked with Credit Information Bureau (India) limited commonly known as CIBIL.

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    Unsecured loan is personal loan? by Shiv Pal:

    A personal loan is also called an unsecured loan. It is different from credit card for its lower interest rates. For personal loan, you are allowed to borrow a fixed amount in a fixed term at a fixed rate of interest. Each bank may have its maximum amount for a personal loan. Over this amount, you are required to put up an asset as security. Generally speaking, the bigger the loan amount you borrow, the lower rate of interest you are required to pay.

    Personal loan can be divided into secure and unsecure personal loan, payday personal loan in Singapore is a kind of unsecure loan. The biggest benefit of this loan is that you are able to get your application approved fast regardless of your poor credit. But the loan amount is small depending on your ability to pay it back. If you need urgent money to pay off your daily bills.

    Personal loans aren’t like credit cards, which are revolving loans. Credit card loans and other revolving loans have no fixed payment term and often have a fluctuating interest rate. Rather, personal loans are a type of installment loan. Installment loans have a fixed repayment term, usually two to five years, and often carry a fixed interest rate. You’ll receive a lump sum up front and then pay the money back (plus interest) in regular monthly installments.