Frequently asked questions around Personal loans in India
What is a Personal Loan?
A personal loan is an unsecured credit instrument that is given by Banks and NBFCs to individuals in need of ready funds. The financial institutions charge interest on the money lent that has to be returned along with the principal at periodic intervals (EMIs) over a period of time (tenure). The loans are unsecured so as a borrower you need not provide any collateral, asset or guarantor.
What can I use the Personal Loan money for? Will the bank ask for a reason?
Unlike other type of loans, a personal loan is an extremely flexible financial instrument. By their nature these advances are for personal use and hence you need not provide a reason nor do the lenders ask for a purpose on how the loan amount will be spent. The loan seeker is free to use the money for any reason as long as the amount is paid back.
What is an EMI?
An Equated Monthly Instalment or EMI as it is popularly known is the amount paid by you to the bank/NBFC every month to repay your loan. EMI is calculated as a sum total of the principal plus interest divided by the total number of months in the tenure of the loan. Check out our helpful EMI calculator here
What is the most important criteria banks look for when giving a personal loan?What is a Personal Loan?
The most important criteria banks look for when awarding a loan is the repayment capacity and your credit rating (also called CIBIL Score). The first criteria most major banks/NBFCs look at is that the overall EMIs (including any current ones) should not exceed 60%-65% of your net income. The second important criteria is your CIBIL rating which should be more than 650 points. These are the two things major banks/NBFCs will consider first to decide whether advancing a loan can be considered. They will look at other criteria if these two basic ones are met.
What criteria should I look for when taking a loan?
It is important as a loan seeker to look at multiple criteria when availing a loan. The most important obviously is the rate of interest which will decide how high or low EMI will be. But apart from these there are other criteria you should look for like pre-closure if an early payment if anticipated, part payment facility and amount (if your needs are flexible). It is important to think of all these and not hasten into getting a loan. You can seek advice about all this when you call us to get a loan.
What is loan pre-closure?
The act of paying off all of your outstanding amount before the end of the loan tenure is called pre-closure. It is a great option if you have the money as it will save you from paying interest for the rest of the tenure. Most banks/NBFCs allow you to pre-close a loan only after a certain number of EMIs have been paid with a small charge on the outstanding principal. A few banks/NBFCs will allow an earlier pre-closure with no charge so it is important to realize one’s payment plan before availing a loan.
What is loan part pre-closure?
Some lenders also allow you to part pre-close a loan which means that you will be able to pay off a part of the outstanding amount instead of the full amount. This is really helpful when you anticipate small amounts of extra money coming to you at periodic intervals. It helps lessen the interest burden and cuts down your EMIs at periodic intervals. Some institutions allow for a single payment a year while some others allow multiple payments. It is important to stress again that you plan your payments before taking a loan as such a facility can be really helpful.
How can I payback my loan?
There are three options that most banks provide as a facility to pay your EMI. If you get a loan from the same bank where you have a banking account then a direct debit option is available. If not then you can pay EMIs through post-dated cheques (PDCs) or National Automated Clearing House (NACH) mandates. In the case of NBFCs then only the last two options are available.