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Personal Loan – Basics for Beginners

In today's day and age, one has various requirements for funds and at times like these, getting a personal loan comes in handy when one falls short of funds for pursuing what they want to.

Purpose for which loan is granted

Such loans are granted for various needs ranging from education, marriage, travel, buying expensive tech gadgets and purchasing a car to renovating your abode.  

Duration for which loan is usually available

This is known as the tenure of the loan and could be anywhere between 1 to 5 years.

Eligibility criteria

A personal loan is usually granted easily if the basic criteria are met. These include being a salaried employee, being within the age group of 25-60 years,have been working for a considerable period (2 years or so in total, and six months or more in the same organisation), having reasonable salary levels (will depend upon loan amount availed). Loan providers also look at the credit score of the applicants.

Where a co-applicantmeeting the above criteriais added, a bigger amount of loan can be availed.

Interest rates

The interest rate charged on such loans varies from bank to bank. However, they are usually in the range of 12 – 13% and above.

Other charges

Most loan providers chargea loan processing fee, sometimes also known as the file processing charges. They are usually minimal, about 2% or so, and are payable upfront.

Apart from that, in case there are any defaults in payment of EMIs, penalty or late payment charges (or both) are payable.

GST is payable on the above charges as well.

EMI calculator

As is the concept of the loan, once the funds are disbursed and the amountis availed, the same needs to be paid back with interest in equal instalments over the payback period. The amount of EMI – equated monthly instalment- that becomes payable depends upon various factors such as the rate of interest, period of the loan, amount availed etc. Some websites are available on the internet which offer quick calculators. Once the key fields are fed in, the calculators give you an idea of how much your EMI would turn out to be.

As for payment of EMIs, standing instructions are given,and these are deductible from the bank account using ECS or NACH facility.

Procedural requirements

A lot of times today, loan processing is done online,and the loan gets approved or sanctioned within minutes, especially if Aadhaar is provided. This is usually for relatively smaller amount of loans, say upto 20-25 lakhs.

Documents that are usually required to be furnished include Aadhaar number, identity proof, address proof (including rent agreement if the place is not owned), last 3-6 months’ bank statements and salary slips for a similar period.

Prepayment of Loan

Prepayment is possible after a stipulated period has elapsed. Most organisations specify a minimum period of 6 months. After that, one can pay the outstanding amount upfront,and loan account can be settled – it is done usually by NEFT / RTGS. Foreclosure charges may have to be paid at that time.

Availing such loans in today’s digital world is an easy, quick and convenient process.

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