Planning to take personal loan? Read this guide
What's the story
Navigating personal loans in India can be tricky, especially with the number of options available. Knowing the different types of loans and their terms can help you make informed financial decisions. This guide aims to simplify the process by explaining key aspects of personal loans in India, including eligibility criteria, interest rates, repayment options, and common pitfalls to avoid.
#1
Understanding loan types
In India, personal loans are mainly unsecured, meaning you don't have to pledge collateral. These loans are mainly used for medical emergencies, vacations, and so on. Some banks also offer secured personal loans against fixed deposits or property, giving lower interest rates but higher risks.
#2
Eligibility criteria explained
To qualify for a personal loan in India, lenders check your credit score, income stability, and existing debt obligations. A credit score of 750 or above is usually considered ideal. Your monthly income should be at least three times your EMI to ensure you can repay the loan without defaulting. Meeting these criteria increases your chances of approval and favorable terms.
#3
Interest rates and fees
Interest rates on personal loans in India range from 10% to 24%, depending on the lender and borrower's profile. Apart from interest, lenders may charge processing fees (1% to 3% of loan amount) and prepayment penalties (2% to 5% of outstanding balance). It's important to read the fine print before signing any agreement.
#4
Repayment options available
Most personal loans come with a tenure of one to five years. Borrowers can opt for equated monthly installments (EMIs) that fit their budget while ensuring timely repayments. Some lenders also provide flexible repayment plans that allow early settlement without penalties, making it easier for borrowers to manage their finances effectively.
Tip 1
Common pitfalls to avoid
One common mistake people make when taking out personal loans is not fully understanding the terms and conditions before signing on the dotted line. Always ensure you know what you're getting into, including all fees involved, so there are no surprises later on down the line when unexpected charges appear on statements unexpectedly!