Personal loans are those which are taken to serve some immediate purpose. There are about 10 banks in India which give personal loans. You will need to compare various factors like EMI, interest, loan amount etc to choose the best place to get your personal loan. It requires no collateral, but you will require submitting a number of documents. Large amounts can be taken as personal loans. In general, it has to be paid back within five years.

A personal loan is taken to serve some personal ends. It does not require any collateral and the money can be used to serve any personal ends. Often, the money is used for a wedding, to organize a holiday or to buy consumer durable goods. There are around 10 banks in India that offer personal loans to you without any security.

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Advantages of personal loans

If you have a big cash commitment, then personal loans are the best way to go. The various advantages of personal loans are as follows:

  • You need not supply any security or collateral.
  • Large amounts are available as loans. The amount of personal loans in India ranges between Rs. 50000 and Rs. 30 lakhs.
  • The process is extremely simple and fast. Most personal loans are disbursed within a week. You require furnishing simple and easy documents only.
  • There are no questions asked regarding the end use of the money. The bank is not concerned what you use the money for. It is only concerned with your ability to pay back the loan.

Choosing the best bank for your personal loan

Before you start applying for personal loan, it is necessary to choose the best bank for it. The process of choosing the best source of personal loans is as follows:

  • First, check out the banks in your area who are giving personal loans. Sometimes, there may be limits on how much loan the bank can give. If you require money in excess of this, you should look for other banks.
  • Gather data from all the banks in your area. Then compare among them to choose the best. Then apply to your chosen bank. Do not apply to a number of banks and then choose one.
  • Check the EMI per month that you will need to pay. You can multiply this by the total tenure of the loan to know exactly how much you will be paying extra. You can do this for the different banks to find out where you need to pay the least.
  • Most banks charge a processing fee to disburse your personal loan. Compare the fees of different banks to get an idea of the expenditure. There is no need to pay fees to any individual when you take out a personal loan.
  • If there is a pressing need for money, then the time of disbursal of the loan can be an important consideration. Compare this time period for the different banks. A bank that sends representatives to your house to complete the process will likely get the matter done faster than a bank that asks you to visit the branch.
  • Compare the prepayment charges for the different banks if you are planning to pay off your loan in lump sums. Opt for those that allow 0% prepayment charges.
  • Interest rate is of course an important consideration for choosing the most suitable personal loan. Interest rates can be of two types. These are as follows:
    1. Flat interest rate is one that remains same throughout the tenure of your loan. It generally works out to be quite expensive. So it is best to avoid this type of rate.
    2. Reducing balance interest rate is calculated on the reducing amount of principal. This is less expensive and your best option when you are paying off your personal loans.
  • It is necessary to collate all these factors to arrive at the most suitable personal loan for you.

Comparing the different sources of personal loans

Here is a brief outline of the various banks who give personal loans. However, you should check with your local branch to verify the specifics.

Banks Interest rate (%) Processing fees (%) Amount (Rs) Prepayment charges (%) Disbursal time
HDFC 13.99 – 22.25 2 for A/C holders, 2.5 for non A/C holders 50000 - 1500000 4 2 – 7 days
ICICI 14.0 – 18.5 2 – 2.5 50000 - 1500000 5 7 days
Bajaj Finserve 15 – 17 2 – 2.5 1 lakh to 25 lakhs Up to 2 4 working days – approval in 24 hours.
Kotak 15 - 19 Up to 2 1 lakh – 15 lakh 5 7 days

Things to do before applying for a personal loan

The actual process of taking out a personal loan is quite easy and fast. However, if you want the process to go smoothly without hitch, there are a number of preparations that you can complete beforehand. Most of these include getting the required documents in order. These preparations are as follows:

  1. Gather the relevant information stated above from the internet as well as your local area branches. You can then compare them at home to choose the best. When you go out to apply for the loan, you will be well prepared and need not waste any time.
  2. Find out what documents are needed and get them in order.
  3. All banks require an identity proof, preferably a photo ID. Get a photocopy of PAN card, driving license, passport or photo credit card. In the last case, the card should be current and you will also need to submit the statement for the last two months.
  4. You will also need to furnish any one of the above documents as your age proof.
  5. Prepare an address proof with current address. Any one of the above documents will do. Apart from these, you can also submit utility bills, rental agreement or title deed of property as address proof.
  6. You need to submit an income certificate. You can submit your current salary slip.
  7. Most banks will require a job continuity proof. You can provide Form 16 or a relieving letter or an appointment letter for last two months.
  8. If you are self employed, you may need to submit a profit and loss statement, balance sheet or partnership deed as proof of income.
  9. You have to submit a document like account statement or photocopy of passbook as proof of your banking history.

The process of applying for a personal loan

Once you have taken all the preparatory steps described above, it becomes very easy to apply for a personal loan. The step by step process is as follows:

  1. Gather all the relevant information from the branches of the banks in your area. Be sure to collect information on the heads specified above like interest rates, monthly EMI, disbursal time, loan amount, prepayment charges, processing fees etc. Clearly ask if any other fees are involved.
  2. Compare the banks and choose the one that is most suitable for you. Then apply to it.
  3. Prepare all the documents listed above. In addition, once you choose the bank, you should find out if it requires other documents. Some banks may require the signature of a guarantor in case of large amount. So, you need to arrange for that.
  4. Banks perform a credit check before disbursing your loan. For this, the CIBIL score is used. This score is calculated from all your loan information reported to the Credit Information Bureau of India. The CIBIL score ranges from 100 to 999. Higher the score, faster the approval.
  5. Most of these banks will send a representative to your home to pick up the documents and complete the processing.
  6. The tenure of most personal loans varies between 1 to 5 years. Before taking the loan, ask the representative what will happen if you cannot repay on time or you miss an EMI payment. Be clear on this issue before taking the loan.