Hela September 23, 2019

A personal loan is a credit that a bank offers to a person based on the applicant’s credit worthiness. There is no security required for this kind of loan. This means that if you need funds for a short period of time to meet an emergency expense or go on a vacation or pay for your child’s marriage, you can borrow funds from the bank and pay it back within a short duration.

It is a low risk loan given to people with good credit score and you will not be asked to mortgage your property or assets against this loan. Personal loans can be taken for various reasons including to meet household expenses, to pay for a marriage in the family, to complete renovations at home, or even to pay for a vacation.

Types of personal loans offered in India

Banks and financial institutions in India offer a range of personal loans. Some banks also have customised personal loans based on the requirement of the applicant. These are usually short term loans for small amounts to help the loanee meet immediate needs . The loan is available without security.

Here we discuss some of the common personal loan types in India. This list is not exhaustive of all personal loans.

– Home Renovation: While there are home loans available for purchasing a property, banks also offer smaller loans for renovation of your house. These loans are called Home Renovation Loans and are offered to cover repair and other renovation costs for the home.

– Wedding: Weddings are an expensive affair in this country. Expenses for the marriage, the venue and the party are sometimes out of our budget. To ease the situation, banks offers Wedding Loans that can be taken by the bride or groom or any of the family members on either side.

– Vacation: Going on a holiday could also imply increased expenses. With a Holiday Loan you can defer your worries about expenses and enjoy a vacation. Sometimes these loans come with travel insurance too.

– Festivals: Some banks offer small loans for celebrating festivals. These loans help you prepare for the festivities and help you host parties.

– Pension: Pensioners can borrow almost seven to 10 times of their pension as loans for various expenses such as medical bills and paying for a wedding or even to pay for their daily expenses.

– Appliances: Yet another variant of the personal loan is the Consumer Durable Loan that is offered by banks for people looking to purchase white goods or appliances such as washing machine, fridge, TV etc.

– Computer: Some banks also offer loans for the exclusive purchase of computers and laptops. So if you are planning to purchase a high-end computer or laptop and do not have enough funds, you can take a loan for it. Some banks also offer insurance along with the loan.

Eligibility for personal loans

The eligibility criteria for personal loans differ from one bank to another. It is, therefore, advisable to compare the eligibility criteria of different banks before finalising on the bank.

Here are the general eligibility criteria followed by most banks which are valid for most types of personal loans:

For Salaried Individuals:

– The applicant should be at least 21 years old.

– The age of the applicant should not exceed 60 years at the time of the maturity of the loan.

– The applicant should have been employed for a minimum of two years and spent one year at the current organisation.

– The applicant should have a minimum income of Rs. 7,500 per month to Rs.15,000 per month

For Self-Employed Professionals and Businesspersons:

– The applicant should be at least 25 years old.

– The applicant’s age should not exceed 65 years at the time of maturity of the loan.

– The applicant should have a business that is at least three years. In case self-employed professional, the applicant should have been in the current profession for at least three years.

– The minimum annual income of the professional/ businessperson is Rs 1 lakh.

Documents required for personal loans

For a personal loan banks usually ask for an income proof, an address proof and an identity proof, irrespective of the types of personal loan. Apart from this you need to submit two passport size photos.

As income proof, you can submit your bank statement for the last three months or income tax return for the last two years. You may also be asked to submit a proof of continuity of your job. This can be submitted in the form of your appointment letter or Form 16.

Proof of Identity can be submitted as a copy of your passport or PAN Card or Driving License or Voters ID or Aadhar Card. As proof of residence you can submit a copy of passport or Ration Card or Aadhar Card or Utility Bill or Voter ID or an LIC Policy Receipt.

Apart from this you may also be asked for additional documents depending on the kind of loan.


How is a home loan different from home renovation loan?

As the name suggests, a home loan is given to a person who plans to purchase a flat or a piece of property. This is a secured kind of loan where the applicant has to offer a security to the bank in case he/ she defaults on the loan. On the other hand, a home renovation loan is for people who wish to make repairs or renovations to an existing house. This is an unsecured personal loan which means there is no security required. Home loans are usually for a higher amount and the tenure is generally long. On the other hand, personal loans such as home renovation loans are short term loans and the amount is also relatively small.

What is a top-up loan?

A top up loan is a facility provided by banks and financial institutions where an existing customer can borrow an additional sum of money over and above the existing loan. So if you have an existing personal loan and you are in need of an extra fund, you can simply get a top up loan on your existing loan. This way you can consolidate the repayment of both the loans. You need not pay separate EMIs.

Not all banks and financial institutions offer this facility. Moreover, not everybody is eligible for this loan. Your top up amount will also depend upon the repayment capacity of the applicant, credit history and income of the applicant. So make sure you do not default on the payment of any of your EMIs or credit card bills. As an added advantage the interest on top up loans is eligible for tax deduction benefits under Section 24 of the Income Tax Act.

Banks usually offer such top up loans on existing home loans. With an existing loan, if you stick to your repayment schedule, your loan amount reduces over time. The banks let you take advantage of this reducing margin and offer you special top up loans.

How do I improve my chances of getting my personal loan application accepted?

Securing a personal loan is not rocket science and as long as you understand the eligibility criteria of the loan, you should be able to get your loan approved. Apart from that, there are a few things you can do to make sure your loan is approved.

The first step is to find out your credit score. Your loan application will be adjudged by your credit score. A higher credit score means you are an ideal candidate for a loan.

It is then imperative that you maintain a good credit score. Do not default on your existing loans or credit card bills. How you manage your credit will not only decide the fate of your loan but also decide the loan amount you are eligible for. Ideally, a credit score above 750 should help you get your loan approved.

If you have a poor credit score, it would be advisable to wait a few months, identify the bad credit and correct the same. With an improved credit score, you are more likely to get your loan approved. Another thing to keep in mind is to not apply for loans at too many banks. Every time a bank makes a query about your credit score, it is recorded and is likely to adversely affect your credit score.

Compare all loan products available to you in the market. Compare the features and advantages of loans provide by different banks. Choose your bank wisely based on your demand and the benefits provided by the bank.

Another important criteria while deciding on a loan application is the applicant’s job stability. Apply for a loan only after you have spent at least a year in your organisation. Most banks require the applicant to have at least two years of work experience.

What is a bridge loan? How is it different from a personal loan?

A bridge loan is a short-term loan taken by the applicant for a set period of time ranging from a few weeks to three years. The interest rate is generally much higher than the standard interest rates of other loans. Bridge loans are taken at times of dire need. It is also referred to as caveat loan or swing loan.

Personal loans are also short-term unsecured loans but the tenure is longer than that for bridge loans.

An ideal situation for a bridge loan is when you are trying to sell an existing property to buy a new one. However, in the given situation you are forced to buy the new property even before you have sold your old property. In such a situation you may opt for a short term bridge loan to arrange funds for the purchase. You can pay the loan back when your old property is sold.

Bridge loans come with high interest rates. So you must weigh all your options before you opt for a bridge loan. For example, in the above situation, you can opt for a bridge loan to pay for your new property and wait for a good price on your old property.