Financial emergencies come unannounced. More often than not, individuals remain unarmed to fight the battle against dire financial needs. With a fixed income and monthly expenses, it becomes quite difficult to pay for these additional expenses. The best option is to opt for a personal loan to tide over your financial predicaments in such a situation. But not every individual has a fair and square idea about personal loans and how they work. That is exactly why we have elaborated below what exactly is a personal loan and how they work. 

What is a personal loan?

A personal loan is a type of credit that is generally unsecured in nature. Meaning, as a borrower, you do not need to pledge any collateral to obtain a personal loan. Personal loans have no limit on the end-users and can be used for various purposes, such as paying medical bills, marriage, education, home renovation, vacation and more. Thus, the lenders give you the choice of using the personal loan according to an individual’s personal requirements. Moreover, a personal loan can either be opted online or offline with negligible paperwork and disbursed quickly. 

A personal loan can be secured in nature only if the financial institution thinks that the risk of granting the loan is quite high. In such a case the borrower has to pledge for collateral for the borrowed sum. 

Eligibility Criteria

In order to avail of a personal loan, the borrower needs to meet certain criteria listed out by the preferred financial institution. These criteria are as follows. 

• You must have a minimum monthly income ranging from Rs. 25000 to Rs. 30000.
• There is also a minimum and maximum age limit which varies depending on the financial institution, but usually, you must be at least 21 years for applying for a personal loan. 
• The borrower must have a credit score of at least 750 or above. 

Documents required

The documents required for opting for a personal loan vary from bank to bank. Given below are the documents that are asked by every bank in general. 

• Proof of identity. 
• Proof of address. 
• Bank records of the last three to six months. 
• Salary slips of the past three to six months. 
• In case of a job change in the past six months, you may have to submit the salary slips of the past firm. 

Interest rates on personal loans

The interest rate on a personal loan depends on the type of loan you choose. Moreover, different banks offer different rates of interest against their personal loan. However, in general, the interest rate ranges from 18% to 30% p.a. and not more. The interest rate is levied by a bank based on the personal situation, product, credit profile of the individual and other relevant aspects. 

Steps to apply for a personal loan

You can apply for a personal loan, either offline or online. Below we have given both the methods of applying for a personal loan. 

Offline procedure

Follow the steps given below to opt for a personal loan offline. 

• Visit the preferred bank. 
• Learn about the eligibility criteria required.
• Obtain the form for the personal loan. 
• Fill in the required details. 
• Submit the form along with the required documents. 
• The bank will validate the details of the form and the documents submitted and process the loan within a few days. 

 Online procedure

Follow the steps given below to opt for a personal loan online. 

• Land on the official website of the preferred bank or download the internet banking app of the same. 
• Learn about the eligibility criteria required. 
• Fill in the form online. 
• Upload the needed documents. 
• Once the documents are verified by the lender, your loan will be processed. 

There are various banks in the market that offer personal loans at competitive interest rates. Study all your options and choose the lender that provides the lowest interest rate along with attractive benefits.