28 Feb 2014

Rupeepower Editorial Team

Personal Loans

Personal Loans Frequently Asked Questions

What are Personal Loans? When should I borrow using Personal Loans?

Personal Loans are a great way of funding our growing wants and tackle emergencies. Emergencies such as hospitalization and accidents can often put strain on individuals with fixed income. Also, expenditures on marriage, family functions, education, vacations, travel, home purchase or improvements can also be funded using personal loans. Personal loans can be availed in relatively less time without the need for any collateral for almost all customer needs. Given most people have fixed income, personal loans help even out large one time expenses by shifting this burden into smaller payments over the future.

How do I borrow money through Personal Loans?

Personal loans are a relatively easy and cost effective way to borrow money. But, the process can be complex if you do not have a good knowledge of bank processes and product knowledge. Moreover, you should compare interest rates from different banks as they often vary significantly. Many times banks are running promotions which you can avail to bag a great deal! You can either visit individual banks and their websites or simply compare all products and offers on RupeePower.com. You can also view this short video to learn more about how to get personal loans.

What factors affects my eligibility to avail Personal Loans?

  • Financial Background such as Salary
  • Credit History including Past Loans, Bill Payments, Credit Card Records
  • Company of Employment & Industry
  • Work Experience

Given that there is no security for personal loans, your eligibility depends on factors which affect your ability to pay back the loan. For example, if your salary is Rs. 15,000 you are unlikely to be able to pay an EMI of Rs. 20,000 a month. But, earning Rs. 20,000 a month, you can easily pay an EMI of Rs. 8000 on a personal loan. Similarly, your past loan history or the company of your employment affect the chances of you paying back your personal loan.

What is the Maximum Loan Tenure?

Personal loans can be borrowed for a maximum of 5 years or 60 months.

What is an EMI?

Personal Loan EMI Flows

An EMI, Equated Monthly Installment, is a fixed payment which you have to make every month. You pay this fixed/constant EMI for the remainder of your loan period. Your EMI includes the interest payment on the remaining balance and repayment of the borrowed amount. As your loan balance goes down, so does your interest payment. Given EMIs stay constant, initially your EMIs consist more of interest payments which reduce with time. The loan repayment on the other hand increases with time.

For example, you take a personal loan for Rs. 1 Lakh at 10% interest for 5 years. Your EMI of Rs. 2125 includes the interest payment back to the Lender as well as a part of the borrowed principal. Slowly, interest component in your EMI will reduce and the repayment component will increase.

How do banks give me the loan amount?

The banks issue a cheque against your name which you can deposit in your bank account.

When is the processing fees charged on personal loans?

The processing fees is deducted from your loan amount. Hence, when you get the cheque against your loan, your processing fees will be already deducted from the loan amount.

How to repay Personal Loans?

The bank offering personal loans will make you sign an ECS mandate. The EMIs will be deducted from your salary account every month through Electronic Clearing Service. You can alternatively pay by cheque by issuing post-dated cheques for the entire tenure of the contract. The amount of each post-dated cheque will be the EMI which the bank can deposit monthly.

Can Personal Loans be paid before the complete loan tenure or prepayment?

Yes, if you have the financial means to prepay your loan you can go ahead. But, you should be careful about the charges. Some banks levy prepayment fees which are either paying the complete interest you would have paid if you did not prepay or paying a certain percentage on the balance amount. If there are no fees then you can go ahead and prepay the loan.

Otherwise, paying all the interest due in the future at present is not sensible. If the prepayment fees is a few percent on the balance, you should check if it makes financial sense to prepay the loan using our prepayment calculator.

What is the maximum loan amount?

Your eligible loan amount is dependent on your ability to pay back. Usually personal loans go up to Rs. 15-20 Lakhs. If a person is spending more they are usually obtaining an asset such as as a car or house. It will be a better option to go for a car or house loan in such scenario as interest rates are lower. On the other hand, some banks offer high value personal loans up till Rs. 30 Lakhs.

What is the interest rate for Personal Loans?

Interest Rates vary a great deal based on your ability to pay back and the loan amount you are borrowing. Banks will offer you lower interest rate if you are likely to pay back the borrowed loan amount. Further, your interest rates reduce as your loan amount increases. You can check your eligible interest rates from multiple banks on our website.

What is the minimum and maximum age to borrow Personal Loans?

Generally the minimum age is 21 and the maximum age is 60. These requirements vary between banks.

Is any type of security or collateral required for Personal Loans?

No, personal loans are unsecured which means that you do not need to provide any security to the bank. Therefore, you do not risk loosing personal assets if you are not able to repay your loan.

Are guarantors required to co-sign Personal Loans?

No. Most banks do not require you to find a guarantor to co-sign your personal loan. However, few banks require guarantors for borrowers working in the software industry.

What can I do if I cannot repay my Personal Loan?

It is possible that things do not go according to plan and you are unable to pay your EMI (equated monthly installment).

You can ask the bank to restructure your loan such that your EMIs become lower so it easier for you to repay the loan. The bank will either increase your loan tenure or reduce the interest rate. The bank can help you convert the loan from an unsecured to a secured loan against an asset such as a house, car, mutual funds, RBI bonds, gold, bank Fixed Deposits, life insurance policy, shares or debentures by asking the bank to reduce the applicable interest rate.

You can take a secured loan from another bank and pay-off your existing personal loan using the raised money.

You must do everything possible to repay the loan as it will otherwise spoil your credit history. This will make it much harder for you to get a personal loan in the future. This will also increase the applicable interest rates available to you. So, be careful before you default on your loan.

How do Personal Loans compare with other sources of finance such as Home Loans or Loans Against Property?

Personal loans are availed when funds required are not very high. Interest Rate of Personal Loans is a few percentage points higher than Home Loans or Loans against Property. But, Personal Loans are unsecured, which means that borrower does not need to provide any security to bank. Hence, personal loans can be approved very fast.

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