A Layman's Guide to Personal Loan!

Introduction

There’s always a time when we get introduced to new words and new terminologies in the world. Continuous learning makes a human updated and knowledgeable. But, when it comes to personal loans, it is more than just a single word.

In this ultimate layman’s guide for personal loans, we will walk you through every little thing you must know about personal loans.

What is a Personal Loan

A personal loan is a financial support provided by banks, NBFCS and credit unions to borrowers. You receive an amount of money and agree to repay it with the cost of borrowing in equated monthly instalments.

Terms Related to Personal Loans You Must Know

Principal Loan Amount: The total you are borrowing from your lender. It does not include the cost of borrowing you are repaying with the actual amount.

Cost of Borrowing: You pay a percentage of your principal amount while you repay your loan to the lender. It is called as cost of borrowing.

Credit Score: A three-digit number showcasing your financial behaviour in a credit report. It is generated based on your repayments, existing credits, and a credit utilization ratio.

Equated Monthly Investment (EMI): EMI is a fixed part of the total amount you repay each month. It consists of the principal amount and the cost of borrowing.

Loan Tenure: Loan tenure is the total period given to repay your loan, starting from the day of loan disbursement and last repayment.

Processing Fee: A fee a lender charges to process your loan application.

Collateral: A property you provide for security to your lender for secured loans.

Repayment: Payments you make monthly to return the borrowed amount to your lender.

Prepayment: When you choose to fully repay the loan before the end of the loan tenure.

Late Payment Fees: It is a fine you pay if you miss a payment.

Debt-to-income Ratio: It is a percentage of your income used to pay debts. The lower the debt-to-income ratio, the better the chances of loan approval.

How to Use a Personal Loan

Financial Emergencies: A Personal loan can be used for your purposes. It provides you with emergency financial assistance.

Medical Emergencies: You can use a personal loan to pay unanticipated medical expenses and medical bills.

Home Renovation: If your home needs repairing or you are looking to give a new look to your home during the festive season, personal loans can be a good funding option.

Travelling: From planned dream vacations to unplanned last-minute business trips can be funded using a personal loan.

Wedding Expenses: You can plan your wedding the way you always dreamt of, using a personal loan.

Eligibility Criteria for a Personal Loan

• You must be an Indian Citizen.

• Your age must be between 21 to 55 years.

• You must have a stable income source.

• Good Credit Score above 700 is required.

• If you are a salaried professional, your monthly income must be above 25,000 INR. For self-employed individuals, the minimum monthly income must be above 25,000 INR.

Documents Required for Personal Loan Application in India

Identification: You must submit a valid identity document such as Aadhaar card or PAN card.

Proof of Stable Income: You must submit the last 3 months’ bank statement that proves your stable monthly income.

Factors Affecting Loan Approval

Credit Score: Credit score proves how reliable you are with the lender’s money. Hence, a good credit score gives you a higher chance of getting your loan approved.

Employment Status: A stable source of income is required to get your loan approved. It ensures you can make timely payments without fail.

Income: You must fulfil the criteria of the minimum income requirement set by your lender.

Existing Credits: If you already have loans, it may reduce your chances of getting your loan approved..

How To Get a Personal Loan

Apply: You can apply for a personal loan online by using online loan apps. An online loan application requires a few basic details and fewer documents for identity and income verification.

Wait for an Approval: Once you fill up the application and submit it, wait for your loan approval.

Disbursement: Once your loan application is approved, you will receive your funds straight into your bank account.

Repayment: Repay your loan in EMI set by your lender within the loan tenure.

Benefits of a Personal Loan

Easy Eligibility Criteria: Lenders keep easy eligibility criteria for personal loans to make them available for people coming from diverse backgrounds.

No collateral required: Personal loans offer you a small amount up to 3 lakhs that do not need any collateral.

Flexible End Use: You can use your loan amount for your purposes with freedom of end use.

Minimal Documentation: Less documentation is required for personal loans.

Fast Application Process: Short loan process with minimal documentation.

Quick Loan Approval: With no collateral process, the loan gets approved faster.

Quick Loan Disbursement: Loan gets quickly disbursed once it is approved.

Helps You Build Credit: When managed with responsibility, a personal loan can help you boost your credit score.

Things to Consider While Applying for a Personal Loan

Legitimacy of the Lender: Always check the legitimacy of your lender to safeguard against fraudulent lenders and non-RBI-approved lenders. RBI-approved lenders follow guidelines set by RBI and offer genuine terms and conditions for personal loans.

Cost of Borrowing: A Low cost of borrowing is better. It reduces the overall price you pay.

Additional Fees: Apart from the interest rate, you should consider checking the Application process, the administration fees, the annual percentage rate (APR) and other additional charges. Sometimes, you end up paying more additional charges than the cost of borrowing, which can make you pay more in gross.

Prepayment Penalties: Must check the penalties you need to pay in case of missed payments.

Repayment Terms: Check repayment terms carefully.

Terms and Conditions: Carefully read your loan agreement to avoid surprises later.

Lenditt Instant Digital Personal Loans

Lenditt offers digital personal loans through its fastest online loan app in India. With dynamic customer support that enables 24/7 assistance, Lenditt ensures you get the best financial support in your tough times.

You can get up to Rs. 3 lakhs instant personal loan with a competitive cost of borrowing from the comfort of your own home. You do not need to step out and wait in a long queue to receive money in emergencies.

Also, AI-backed e-KYC and entirely paperless and online documentation simplify your loan experience.

Go and check out our exciting and customized loan products on our official website.

Conclusion

Thank you for coming this far with us!

Whenever you feel like refreshing your personal loan basics, you can visit this blog. Also, if you want to learn more about loans and financial literacy, you can check out our previous blogs on our official website.

See you in the next informative blog.