Know All Frequently Asked Questions for Personal Loans

Is there an urgent need for money on your part? If this describes you, a personal loan from a bank or NBFC may be in your near future. Personal loans are available from banks and financial organisations for several reasons. These include weddings, medical treatment, travel expenditures, house improvements, school fees, etc.

A low-interest personal loan shouldn’t be hard to come by if you have a high credit score. Still, before opting for a personal loan, it’s important to do some homework.

We have answered some of the most frequently asked questions below:

11 Most Frequently Asked Questions for Personal Loans

What is a personal loan?

Personal loans are short-term loans made to individuals. They are given without regard to credit history or collateral. Tangible assets like a house, boat, or vehicle do not back an unsecured loan.

Like other loans, these are repaid over time. They are repaid through EMI at a fixed interest rate.

Interest rates for personal loans are cheaper than those on credit cards. That’s because of the fixed payback term and if the borrower has an excellent credit history.

What Are Personal Loans Used For?

You can put a personal loan toward anything like:

Consolidating debt to make major purchases

• Repairs to the house or car
• Paying off high-interest credit card bills
• Starting a business
• Funding a medical emergency

Combining high-interest credit card debt is by far the most typical use of a personal loan. Compared to credit cards, personal loans have lower interest rates. Also, they needly one fixed payment per month, and allow you to save money on interest during the loan’s term.

Am I Eligible For A Personal Loan?

Your ability to get a personal loan depends on:

• Their credit score
• Income
• Debts
• Ability to repay the loan each month

While requirements vary per lender, a good credit score is often anywhere from 700 to 750 or above.

Will getting prequalified for a personal loan affect my credit score?

Most of the time, a prequalification inquiry won’t appear on your credit report. Instead, shopping for the best deal on a personal loan is important. It’s important to compare, just like you would when searching for a mortgage provider.

Most loan companies will send you offers after running a “soft” credit search. This way, you may check out the rates and terms of other lenders without compromising your credit.

What documents are needed for a personal loan?

Lenders ask for ID proof and proof of income to reduce the risk of lending money to a potential borrower. Whenever proof of something is required, you may have to provide the following:

• Identity documentation, such as a driver’s licence or other government-issued photo ID
• A copy of your most recent pay slip or banking statement showing proof of employment
• A recent utility bill or loan statement would suffice as proof of residence

What is a secured personal loan?

When you take out a personal loan, chances are it won’t be secured by anything tangible, like your house or car. When you apply for a personal loan, lenders will look at several factors. For example, they’ll look at your credit score and income to determine how likely you are to get approved.

Suppose your credit score and monthly income aren’t quite up to snuff. In that case, you can still qualify for a personal loan by taking out a secured loan. Sometimes, you can secure a more favourable interest rate or a bigger loan amount. That’s when you put up collateral in exchange for a personal loan.

Is there a prepayment penalty for a personal loan?

The term of your personal loan is the time you’ll be required to make payments. Knowing if your lender has a prepayment penalty if you want to pay off your loan early is crucial. Your lender will choose the specifics.

Why is my personal loan interest rate higher than my home or car loan interest rate?

Home and car loans are examples of secured loans because a real asset backs them. Hence, you risk having the asset repossessed if you default on the necessary payments.

When you apply for an unsecured personal loan, you don’t have to put up any collateral. Instead, lenders will take the risk of your repayment based on your promise.

Thus, the interest rate on an unsecured loan will be higher than on a secured loan. That’s because the lender is taking on more risk by making the loan. Yet, weigh the loan’s cost against that of other funding sources, such as your home’s equity. Borrowing against equity can sometimes result in a far higher rate of return.

How Much Can I Borrow from a Bank?

It depends on a lot of things how much you can borrow from a bank. Ideally, a salary worker’s EMI payment wouldn’t be more than 30% of their monthly income. The lender will also consider existing loans with EMI payments.

For self-employed people, lenders will give loans based on their business’s income. Lenders will consider the individual’s total debts, not just the ones listed above. The maximum loan amount is also subject to the lender’s policies and restrictions.

How Can I Reduce the EMI Payable for a Personal Loan?

When your credit score exceeds 750, you may qualify for a lower EMI on your personal loan. Your ability to negotiate a lower interest rate or other reductions depends on you. It depends on the quality of your relationship with the lender.

Is it possible to prepay a personal loan?

There are loan providers who, depending on their policies, will allow you to prepay the debt. A prepayment penalty is possible. It is also important to confirm with your lender whether they permit prepayment.

Conclusion

Read through these frequently asked questions about personal loans. After reading, you should know better what to expect if you apply for one. The most crucial consideration is not taking on more debt than you can comfortably repay. 

You’ll be ready to begin the application once you’ve got an EMI amount within your budget and you’ve verified that you meet all the necessary requirements.

You can get a personal loan of up to Rs 10 lakh by going to Piramal Finance today.