What Are Personal Loans & Mandate for Personal Loan Approval

A personal loan is an unsecured loan wherein no commodity is mortgaged to the bank as security. These loans are granted for a variety of purposes such as holidays, education, wedding, medical emergency, etc.

The interest rates for personal loans are comparatively higher in comparison to any other loans. The interest rate for a personal loan is 3 to 10 percent higher than other loans such as home loans. The banks and financial institutions grant loans based on credit history only of the individual since there is no security or commodity mortgaged against the said loan. Therefore, the creditworthiness of the loan applicant is the primary factor basis in which the Banks approve the loans of the applicant. The CIBIL score of the applicant is determined from various factors including but not limited to the past payment history and overall track record of defaults in payments. Depending upon the nomenclature of the respective Bank, personal loans are approved instantly.

The Banks charge a comparatively higher amount of interest for disbursing personal loans since the risk factor is high as no commodity is mortgaged against such loans which make the recovery of loan difficult in case of any defaults or bad debts. Personal loans are granted for a minimum amount of Rs. 50000/- to the maximum of Rs. 25 Lakhs with repayment duration of 1 to 5 years.

Since the risk factor involved in unsecured loans are higher, any default in payment by the user carries high weightage and results in a high negative impact on the CIBIL score. The CIBIL score is calculated on a scale of 900 points and the user should try to maintain the minimum a CIBIL score of a minimum of 750 points. Preferably, the loan applicant should also try to maintain a loan mix of secured loans as well with personal loans to keep the CIBIL score in control and should avoid any defaults in payments.

Eligibility Requirements

1. Repayment Capacity – The loan eligibility and repayment capacity are decided upon two factors mainly annual Income and Other Loans. An individual can pay up to a maximum of 50% of his / her monthly income as monthly EMI. Therefore, if the monthly income is Rs. 50,000/-, the user can pay up to Rs. 25000/- as monthly EMI. Therefore, the Bank shall consider this limit as the paying capacity of the applicant and grant loan in accordance with this capacity. If any loan is already availed by the applicant previously from any Bank, Bank shall calculate the sanction amount basis the EMI and the interest already being paid out of the said limit.
2. Minimum Income – The income eligibility for personal loans is Rs 15000/- per month for most banks. However, it depends upon the Bank’s policies.
3. Customer Profile – The customer profile is considered and includes various factors such as occupation, salaried or self-employed, monthly income, income stability, Employer in case of salaried, etc.
4. Age Limit – Age limit to avail loan in case of salaried Is 21-60 years and in case of a business it is 21 to a maximum of 65 years.
5. In the case of a professional or businessman, a minimum of 3 years of business is mandatory for the approval of personal loans. Income stability is also considered to be an important factor for the approval of the loan.
6. A credit score is an important deciding factor in the case of personal loans and should be around 750.
7. Assets and Liabilities – The Banks consider the overall liabilities and assets before granting a personal loan. Therefore, liabilities should be less than the assets.
8. The number of Dependents and spouse income – With the number of dependents, the bank analyses the monthly expenditure as compared to the income of the family to determine the repayment capacity.

Documents required for a personal loan

• FOR SALARIED INDIVIDUALS

1. Application with the photograph.
2. Pan Card
3. Address & Age Proof – Passport, Voter Id, Aadhar Card or Driving License.
4. Bank Statement for 6 months.
5. 3 months salary slip in case of working professional.
6. Processing Fees paid by cheque; processing fees is about 1% to 2% depending upon the nomenclature of the Bank.
7. Form 16 and income tax returns filed.

• FOR BUSINESSMAN

1. Application with the photograph.
2. Pan Card
3. Address & Age Proof – Passport, Voter Id, Aadhar Card or Driving License.
4. Bank Statement for 6 months.
5. Proof of business existence and business profile for a duration of 3 years.
6. Education Qualification Certificate
7. Processing Fees paid by cheque; processing fees is about 1% to 2% depending upon the nomenclature of the Bank.
8. Form 16 and income tax returns filed.
9. Audited Balance sheet and profit and loss statement.

• FOR SELF EMPLOYED PROFESSIONALS – DOCTOR, LAWYER, CA EtC

1. Application with the photograph.
2. Pan Card
3. Address & Age Proof – Passport, Voter Id, Aadhar Card or Driving License.
4. Bank Statement for the last 6 months.
5. Proof of business existence and business profile for a duration of 3 years.
6. Education Qualification Certificate
7. Processing Fees paid by cheque; processing fees is about 1% to 2% depending upon the nomenclature of the Bank.
8. Form 16 and income tax returns filed for the last 3 years.
9. Audited Balance sheet and profit and loss statement.

Check your maximum Personal Loan Eligibility