Overview.
A personal loan is a type of unsecured loan that individuals can borrow from a financial institution, such as a bank or credit union, without providing collateral. Unlike secured loans, personal loans are approved based on the borrower's creditworthiness, income, and other financial factors.
Key Features of Personal Loan
- Unsecured Nature: No collateral required.
- Fixed Loan Amount: Lump sum amount with fixed monthly installments.
- Fixed Interest Rates: Interest rate remains the same throughout the loan term.
- Flexible Use of Funds: Can be used for various personal needs.
- Repayment Term: Typically between one and five years.
- Credit Check: Creditworthiness assessed through a credit check.
Documents Required to Apply for Personal Loan
- Identity, Residence, and Age Proof: Passport, Voter’s ID, Driving License, PAN Card, Aadhaar Card.
- Income Proof: 1 year Bank statement, 3 months Salary Slips.
- Employment Proof: Employment Certificate, Office address proof.
- GST or VAT Registration for Self-employed.
- Photograph: Passport-size photographs.
- Business Proof (for self-employed): Business registration documents such as a partnership deed, Memorandum of Association (MOA), Articles of Association (AOA), etc.
- Income Tax Returns: Documents of the past 2-3 years to verify income and tax payment history.
Personal Loan Eligibility Criteria
To qualify for a personal loan, you have to meet certain criteria. Below are the important factors that lenders take into consideration to decide your eligibility for a personal loan.
- Age: Should be between 21 years to 60 years.
- Income: Net monthly income should be ₹12,000/- for salaried individuals and for self-employed, yearly transactions should be a minimum of ₹20 lakhs.
- Credit Score: Must be above 650.
- Debt-to-Income Ratio: This ratio assesses an individual's ability to manage monthly payments and repay debts.
- Employment Stability: Stable employment history is preferred.
- Credit History: A clear repayment history with no defaults or late payments.
- Residency: Must be a Resident Citizen of India.