5 essential insights before taking a personal loan
What's the story
Personal loans in India are a popular choice for those looking to meet immediate financial needs without any collateral. These loans are usually unsecured, which means you don't have to pledge any assets. However, understanding the intricacies of personal loans is crucial for making informed decisions. Here are five essential insights into personal loans in India, covering aspects like eligibility, interest rates, repayment options, and more.
#1
Eligibility criteria for personal loans
To qualify for a personal loan in India, lenders generally look at your credit score, income level, and employment stability. A credit score of 750 or above is usually considered favorable. Most banks also require a minimum monthly income of ₹25,000. Being employed with a stable organization can increase your chances of approval.
#2
Interest rates vary widely
Interest rates on personal loans in India can vary widely from 10% to 30% per annum. The rate you get depends on factors such as your credit history, the lender's policies, and the loan amount. It's advisable to compare rates from different banks and NBFCs before making a decision.
#3
Loan amounts and tenure options
Personal loans in India usually range from ₹50,000 to ₹40 lakh, depending on the lender and your eligibility. The tenure can range from one year to five years. While shorter tenures mean higher EMIs but lesser interest paid overall, longer tenures mean lower EMIs but higher total interest.
#4
Prepayment and foreclosure charges
Many lenders charge prepayment or foreclosure fees if you decide to pay off your loan early. These charges can range from 2% to 5% of the outstanding principal amount, depending on the lender's terms. It is important to read these terms carefully before signing any agreement.
#5
Impact on credit score
Taking out a personal loan impacts your credit score positively if you make timely payments, but negatively if you default or delay payments. A single missed payment can drop your score by 100 points or more, affecting future borrowing opportunities for years.