What is a Personal Loan - Meaning, Interest Rate, Eligibility

If you are typing ‘what is a personal loan’, or ‘personal loan meaning’, we have the answers for you.

When you borrow a certain sum of money from financial lending institutions such as banks or NBFCs with the intent of repaying it, that sum is known as a loan.

Personal loans are different from home loans or auto loans as you won’t have to provide collateral or security to avail them. As a result, personal loans are also known as unsecured loans. This is why getting a personal loan is quick and easy as compared to other loans.

What is a Personal Loan Used For?

Personal loans are versatile and do not have any restrictions regarding the end use. You can use a personal loan to consolidate debt, renovate your house, medical expenses, buy home furnishing or other such items, and so on.

As is the case with every other loan, once you avail a personal loan, it is understood that you will have to repay the same through monthly installments

Apart from getting a personal loan from a bank, you can even get it at a good rate of interest from financial institutions such as Money View

Personal Loan - Eligibility Criteria

The eligibility criteria for a personal loan can differ from one financial institution to the other.

 However, some of the basic requirements are -

  • You will need to receive regular income (applicable to both salaried and self-employed borrowers)

  • Your credit score must be above 750

  • You will have to fall into a certain age category, usually between 21 years and 57 years

Other criteria will vary based on the lender’s requirements.

Features of a Personal Loan

Given below are some of the most common features of personal loans -

  • Your loan repayment duration can be anywhere between 3 months to 60 months (5 years). The duration period will vary from lender to lender.

  • The loan disbursal period can vary from a few hours to a few days (3 to 5 days). But, as these loans do not require collateral, they are generally disbursed quickly. 

Note: Certain lenders such as Money View disburse the loan amount to your account within 24 hours of application approval

  • Personal loans can be availed both online and offline. A number of NBFCs and private lending companies allow applicants to apply, submit documents, and avail personal loans online.

  • 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, lenders 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 other liabilities that you might have.

  • The criteria for sanctioning a loan are mainly dependent on two important factors that are taken into account such as 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. 

    • If your income is low or if your unpaid credit bill is high, the principal amount sanctioned to you by the financial lending institution will be less

What is the Interest Rate on a Personal Loan?

Interest rate is the amount that the lending institutions charge on your loan amount as a part of the services offered.

The interest amount is calculated each month with your EMI and depends on factors such as your income, credit score, repayment term chosen, as well as the loan amount borrowed

Personal loan interest rates vary from one lender to another and usually start at 1.33% per month.

Personal Loan Documentation Requirements

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

Customers should note that these requirements will vary depending on the lender. While the ones mentioned above are mandatory, other documents may be required as well.

How do Banks/NBFCs 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.

In Conclusion

Personal loans are one of the most popular and versatile loans available in the market.

One of the premier lenders in the market today, Money View, offers advantageous personal loans from Rs. 5,000 to Rs. 5 lakh that are dispersed within 24 hours of application approval.

Visit the Money View website or download the loan app to apply now!

Personal Loan Meaning - 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. 

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 plan your finances easily.

Here are some of the use cases for personal loans -

  • Emergency Expenses

  • Debt Consolidation

  • To Repay Credit Card Dues

  • Business Ventures

  • Home Remodeling

  • Dream Vacations

  • Fund Education

  • Buy a Gadget

  • Down Payment for other Loans

  • Servicing or Modifying your vehicle

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.

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.