What is a Personal Loan? / Personal Loan Meaning
When you borrow a certain sum of money from a financial lending institution like banks or NBFCs, then that sum is known as a personal loan.
Personal loans are different from home loans or auto loans as you won’t have to pay any collateral or security against them. As a result, personal loans are also known as unsecured loans. You can easily get such a loan disbursed if you fulfill the limited conditions that are needed for it.
You can use a personal loan to consolidate debt, renovate your house, medical expenses, buy home furnishing or other such items, and so on.
Apart from getting a personal loan from a bank, you can even get it with a good rate of interest from financial institutions such as Money View. Once the loan is sanctioned, you must resolve it by paying for it in monthly installments or EMIs. If you are in a situation where you need money urgently, then you can opt for an instant personal loan from Money View.
The eligibility criteria for a personal loan can differ from one financial institution to the other. However, some of the basic requirements that you need to avail of a personal loan include your address proof, identity proof, etc. You must also show your income source. You can apply for one even if you are not a salaried but a self-employed individual or a businessman. Apart from the mentioned, a good credit score (750 and above) also plays an important role. Once the lending institution is satisfied with your provided documents, your loan will be disbursed in no time.
Loan Repayment Duration
Your loan repayment duration can be anywhere between 1 year to 60 months (5 years). The duration period will vary from bank to bank.
After you submit your documents and they are approved, you can expect to get the loan amount within 5-7 days. You can get the amount via cheque/draft, or you can get it credited directly to your bank account. However, if you do not wish to wait for 5-7 days, then you can apply for an instant personal loan online on Money View and get the amount credited to your bank within 24 hours.
What’s the amount that you can take as a personal loan?
The principal amount that you can borrow depends on your income. It also depends on whether you are self-employed or salaried. In most cases, banks limit the loan amount in such a way that your monthly installment does not exceed 40 to 50% of your monthly income. If you have an existing loan, then that will also be taken into consideration. If you are self-employed, the loan amount will be based on the amount of profit that you have earned recently. It will also depend on the other liabilities that you might have.
How do banks decide on the maximum loan amount?
The criteria for sanctioning a loan can vary from one financial lending institution to the other. However, as already mentioned previously, two important factors that are taken into account are - your income and your credit score. A high credit score would imply that your financial habits are good as you have paid all your dues on time. If you have liabilities such as outstanding credit card dues, unpaid EMIs, and more, then these factors might hamper the sanctioning of your loan amount. Also, if your income is less or if your unpaid credit bill is high, the principal amount sanctioned to you by the financial lending institution will be lesser than those who have no such liabilities.
Documents required to get a personal loan
The following are the documents that you will require to get a personal loan:
- Income Proof (salary slips for salaried individuals and a recent ITR for self-employed individuals)
- Address Proof
- Identity Proof
What is a Personal Loan Related FAQs
Principal amount is the amount that you borrow from any financial institution. For example, if you want a loan of INR 50,000, then that amount is known as the principal amount. The amount will keep decreasing as you keep repaying your EMIs across your loan repayment period.
You can use an EMI calculator to calculate your monthly installments. Check out the Money View personal loan EMI calculator to check your EMI and to plan your finances in a better way.
Interest rate is the amount that the lending institutions levy on your loan amount. So, apart from the borrowing amount, you must also pay the interest charged by the lender. This rate is charged as a part of the services offered by the lending institution. The interest is calculated each month with your EMI. The interest rate depends on factors such as your loan amount, credit score, and your loan term.
Preclosure means resolving your debt amount before the loan repayment term is over. You may be charged an additional amount of 1 to 2% for pre-closing your loan.
Pros: If you wish to repay your previous loan that has an interest rate, then a personal loan with a lower interest rate can help you consolidate the debt. You can also use a personal loan to make changes to your lifestyle or during an emergency. If you repay your EMIs on time and do not become a loan defaulter, then it will reflect on your credit score. So, if your CIBIL score or credit score is on a higher side, you can easily apply for other loans in the future.
Cons: If you do not pay your EMIs monthly, then you will automatically fall in the lending institution's defaulter list, and you could be charged a heavy penalty. Not paying your monthly dues on time will also lower your credit score. So, if your CIBIL score falls anywhere below 700 and you have to take another loan in the future, then getting the loan sanctioned might become challenging.