What is a Personal loan?
Personal loan is a 1-5 year unsecured loan given by banks, NBFC’s (Non Banking Finance Companies) or P2P lending platforms without asking for any collateral, guarantor or hypothecation of any assets. The ultimate usage of a personal loan is left to the discretion of the borrower. In our experience, the borrowers generally use a personal loan for debt consolidation, repaying high cost debt, meeting any family or medical emergency, wedding, vacations, home renovation, rental deposits, business needs for an SME, buying certain assets etc.
How is my loan eligibility calculated?
Loan eligibility is dependent on primarily the following factors:
- The company where you work. Every bank has a list of companies running into thousands which they have categorised into segments like A, B, C etc depending on the credentials and financials of your employer. The higher the category the higher is the loan eligibility chances.
- Quantum of loans and credit card outstanding that you already have. Typically a bank will not give a loan if the total EMI obligation (including the current personal loan that your are trying to apply for) exceeds 50-75% of your total net take home salary.
- Your gross/net salary
- Your credit score as reflected in your CIBIL or Equifax report. Having a good credit score is a necessary but not a sufficient criteria.
My loan got rejected even though I have a decent salary package?
The final decision to grant a loan lies with the credit department of a bank. Some of the reasons why a loan can be rejected are: Possible Issue
Already running several loans and hence a bank may not be comfortable with your existing leverage levels vis-a-vis your salary level. Possible Way Out
- If you have a spouse who is also working, you can add her as a co-applicant to boost the combined salary levels or
- Try to pay off some of your debt so that your leverage levels can come down or
- Do a balance transfer/debt consolidation/re-financing of your existing loans such that the rate of interest on loans can also come down and additional loan can also be provided.
Issues in your credit history as reflected in your CIBIL, Equifax reports Possible way out
- If the issue is a minor one like some delay in payment of credit card due then we can try your application in some other bank who can possibly take a lenient view on the deviation
- If you think that the credit report is erroneous and you have sufficient documentary proof we will represent the case to the bank and try to convince the credit team
- If the issue is a major one like write off, settlement of any past dues etc then it might be difficult to obtain a loan. Certain mitigation factor like if you/your spouse/your parents have an own house in India can give comfort to certain banks to give you a loan.
Most banks have certain internal credit parameters to evaluate a loan which is kept confidential and not shared with us. Several demographic, financial and credit aspects go into these internal evaluation. You might not have met the minimum cut off for obtaining a loan. Possible way out
We can re-apply for your loan in one of the other 10 plus lenders that we are affiliated to.
Pre Closure vs part- prepayment?
Pre closure means that a customer wants to close the entire principal outstanding amount at one go. Whereas part payment means that a customer wants to repay only a certain portion of the outstanding amount. Please ask our advisor for more details on this when you loan is being processed.
Is pre closure allowed in personal loans?
Some banks have a lock-in of 6 months to a year while some banks allow you to pre close even after the 1st EMI has been debited from your bank. There may also be restrictions that you can only use your own funds (and not the balance transfer cheque of another bank) to pre close a loan. In addition, banks may allow pre closure at no cost or may levy a pre closure fee (2-5% of the amount being pre-closed). Please ask for clarifications to our or the banks’ loan advisor on all these factors before signing the loan document.
Is part payment allowed in personal loans?
Some banks like Bajaj Finserv, Axis, Citibank etc allow part payment. However, there can be restriction on how many times in a year you can part pay and the minimum and maximum amount that you part pay. Again, please ask for clarifications to our or the banks’ loan advisor on all these factors before signing the loan document.
What is the minimum and maximum loan limit offered for personal loan?
Generally, the minimum amount loan amount is Rs 50,000 and maximum amount is Rs 30,00,000. Higher loan amounts are dependent on a personal discussion that a bank may want to have with the borrower and then take a call on the loan amount.
How is the rate of interest, processing fee, pre closure fee determined on my personal loan?
The dependent factors are:
- - Loan amount disbursed
- - Company categorisation of your employer
- - Tenure of the loan
- - Salary of the customer
- - Which bank account is the salary getting credited to
How long does it take to disburse the personal loan?
Finance Buddha will work with the banks to try and get you the loan within 2-5 working days of submitting completed documents.
Documents required while applying for a personal loan?
One need to provide an identity proof, residence proof, last 3 months salary slip, last 6 months bank statement and a passport sized photograph. Banks may also ask for additional documents later like Form 16, appointment letter, company ID card, previous company relieving letter
How does personal loan repayment happen?
All personal loans repayment happen in the form of an EMI (Equated Monthly Installment) through the customers bank account. The customer needs to give few PDC’s (Post dated cheques) and sign an ECS mandate in favour of the bank disbursing the loan.
What happens if I miss an EMI payment or there is an ECS bounce?
The bank will levy certain ECS bounce charges/penalties. In addition it will get reported in your credit report. Depending on the severity of the default it can have serious impact on your future credit possibilities like a home loan, car loan etc. In addition, the banks can also take legal action against the borrower.