Personal Loan Rules and Regulations in India
If there is one type of loan that is popularly availed, it is everyone’s favorite - the personal loan. Versatile and easy to get, personal loans can be used for a variety of purposes and do not need collateral as well. There are multiple lenders in the market today offering these loans to individuals at competitive rates but did you know that there are personal loan rules and regulations in India? RBI rules for personal loans seek to protect not just the lender’s finances but also the borrower’s rights.
What exactly are these rules and regulations? How are they mapped out and most importantly what do they cover? Let us explore this below.
Terms and Conditions for Personal Loans
Use and Security
One of the biggest benefits of availing of personal loans is the fact that they can be used for a variety of reasons. Unlike auto loans or education loans, personal loans are not bound by a set purpose. Additionally, personal loans do not require collateral or security therefore applicants must be mindful of this and not fall for fraudulent claims
The eligibility criteria for personal loans are tailored to ensure that borrowers are in a position to repay the same. Each lender has different eligibility criteria in place. Some of the common factors that determine this are as follows:
Age of the Borrower
Most lenders provide loans to those between the ages of 21 and 57. This is because most individuals within this age group have a set income in hand and are in the position to repay the loan
The Income of the Borrower
Perhaps one of the most important criteria that determine the eligibility - the income of a borrower has to be above a certain threshold. Some lenders only provide personal loans to those who are salaried as the risk is higher with self-employed borrowers. Additionally, the minimum income earned can range from Rs. 13,500 to Rs.15,000 or even higher. Apart from this another condition that is generally imposed by lenders today is that the income must be deposited directly to the borrower’s bank account. Individuals receiving income in the form of cash or other methods will not be able to avail loans as easily.
Your credit score is an indicator of your creditworthiness. The higher the credit score, the better are your chances of getting a personal loan at low rates of interest. Most lenders require borrowers to have a credit score of over 700 especially for personal loans as there is no collateral required. Those that have low credit scores or a fragmented credit repayment history will have a harder time getting loans as lenders are unable to trust their repayment capacity.
Other factors include providing correct documents and ensuring that you don’t have too many loans running at the same time.
It is understood that the duty of a borrower is to repay the loan and to make this process easier and less prone to errors, lenders have put forth certain conditions as mentioned above that need to be fulfilled by borrowers if they wish to get the loan.
RBI Rules for Personal Loans
In order to aid the process of lending in a way that is beneficial to both the borrower as well as lenders, the RBI has put forth certain guidelines that need to be adhered to.
RBI Guidelines on Fair Practice Code for Lenders
The RBI issued certain guidelines to lenders to ensure that the process is beneficial to both parties and fair as well. Given below are a few salient points from these guidelines.
All loan application forms must be comprehensive and should include all the necessary information regarding fees and payments. This is to allow borrowers to compare rates with other banks if needed and make informed decisions
The verification of loan application must be done within a reasonable period of time and if additional information or documentation is required, borrowers must be contacted immediately without undue delay
In case loan applications for amounts less than Rs. 2 lakhs are rejected, the reasons for the same must be conveyed in writing
Timely disbursement of loans must be ensured and if there are any changes in terms or conditions, this must be communicated to the borrower
If lenders wish to recall/cancel/request faster repayment, they must provide adequate notice to the borrowers
Lenders are not allowed to interfere with the borrower’s life in general unless provided in the terms and conditions of the loan agreement
Borrowers are not to discriminate based on caste, religion, sex, etc.
Lenders are also not allowed to harass the borrower when it comes to the recovery of loans
There are many more stipulations and guidelines given by the RBI all intended to protect the interests of the borrower as well as the lender.
If you wish to know more about loan recovery processes and the Rights of borrowers, take a look at our article on the same.
Foreclosure and Other Charges
The repayment term chosen by an individual is an indicator of the EMI amount that is paid every month. If one chooses a longer repayment term, lesser is the EMI amount but the interest amount paid overtime is much higher than the interest paid during a shorter loan repayment tenure. However, borrowers sometimes come into a lump sum of money and wish to clear their loan earlier. This is known as foreclosure. While most lenders allow individuals to foreclose their loans, it can only be done after a certain number of EMIs have been paid.
This varies from lender to lender and borrowers must check all the terms and conditions involved before opting for the same as their credit score may be affected in the process as well.
In addition to interest charges, there are other charges imposed such as EMI or cheque bounce charges, part-payment charges, processing charges, etc. All of these must be understood by the borrower before availing of the loan. Some lenders unfortunately also add hidden charges which are not mentioned in the loan application documents. Borrowers are therefore advised to check all the loan offer documents carefully before getting a personal loan.
One of the top lenders in the country, Money View offers loans of up to Rs. 5 lakhs at competitive rates and flexible repayment tenures. Additionally, there are no hidden charges as well.