A personal loan is one type of loan out of the loans offered by Banks and NBFCs. A personal loan is an unsecured loan therefore it does not require any security or collateral with minimum documentation. You can use this loan for any legitimate financial need. Like any other loan, it must be repaid according to the repayment terms mentioned in the agreement with Bank/NBFC. The rate of personal loans ranges between 10% to 40%.
The rate of interest depends upon your CIBIL score and it varies from Bank to Bank and NBFC to NBFC. The rate of interest charged by NBFCs on a personal loan is higher than the rate of interest charged by the banks, therefore it is advisable it you are having a good score and then you have to take a personal loan from banks instead of NBFC. The rate of interest also depends upon your Income, type of residence (owned or let out), type of employment (Government or Non-Government), etc.
Further, Personal loans can only be granted to the person having salary income or pension income, if you have business income then you have to apply for a business loan. A personal loan is also better than the Loan Against Credit Card because the interest charged on the loan against a credit card is subject to the GST and GST @ 18% is also applicable to the interest charged on the credit card loan. If you have taken the loan against a credit card @ 15% then you have effectively paid interest @ 17.70%.
Benefits of Personal Loan
1. Minimum Documentation:- In the personal loan the documentation requirement is very less compared to other loans.
2. Collateral Free Loan:- In the personal loan there is no requirement of any security/Third party Guarantee.
3. Any personal Need:- The personal loan can be taken for any personal need such as marriage (self or relative), family function, house repair, construction of a house, purchase of a car, purchase of household items, medical emergency, or any other personal need.
4. Fast Funding time:- Personal Loans generally have fast approval times and payment times. Some personal loan lenders can deliver the money as soon as possible on the same business day or the next business day.
Limitation of Personal Loan
1. Higher Rate of Interest:- The rate of interest on a personal loan is very high as compared to other loans.
2. High Processing Fee:- In personal loans lenders generally charge a high processing fee and insurance charges.
3. High Pre-payment charges:- If anybody wants to close the personal loan before its tenure then he has to pay the for-closure chares these are very high.
Documents Required for Processing of Personal Loan
1. Passport size of a photograph of the applicant
2. Copy of PAN and address proof of the applicant
3. Last 6 months banking (Bank Statements/Passbook)
4. Last three-month salary slip
5. Last three-year form 16/ last three-year income tax return