Get salary accounts for your team See benefits
What is a Personal Loan?
Best Personal Loan Banks & NBFCs in India 2024
November 7, 2024
Salary Increment Letter to Employee: Get Free Format & Templates
November 8, 2024
As the expenses of an average Indian household increases, the need for taking help of a financial tool also increases for a family. A personal loan can be of great use if you have the current capacity to repay it on time. Here’s everything you need to know about a personal loan.
What is a Personal Loan?
A personal loan is an unsecured loan that allows you to borrow a fixed amount of money from a financial institution like a bank or credit union. This use can be anything that can be covered within the approved amount limit, including covering medical expenses, consolidating debt, or covering some vacation costs. Unlike secured loans, personal loans don’t require collateral. The borrower repays the loan in fixed monthly instalments over a set period, typically with a fixed interest rate, which depends on factors like credit score, income, and loan amount.
How Do Personal Loans Work?
A personal loan is essentially an agreement between you and a lender that gives you access to funds for a variety of needs, whether unexpected expenses or personal projects. Typically, you’d approach a commercial lender or a reliable financial source, where they evaluate your request and, if approved, provide a set amount of money with clear terms attached. These terms cover details like interest rates, potential fees, and how you’ll repay the loan. Finalising the personal loan comes down to both you and the lender agreeing to these terms, making it a mutually beneficial arrangement.
Types of Personal Loans
Based on the reason why you want to take a personal loan there are several different types of personal loans. Below are some of the most popular categories:
- Home renovation loan
- Wedding loan
- Travel loan
- Medical loan
- Debt consolidation loan
- Higher education loan
- Small personal loan
- Used car loan
- Personal loans for teachers
- Personal loan for emergency
- Personal loan for women
- Personal loans for government employees
- Personal loan for salaried
- Festival loan
- Top-up personal loan
- Personal loans for pensioners
- Personal loan for self-employed
- Senior citizen personal loan
- Personal loans for students
In urgent need of funds?
Apply for a personal loan now with ease on the Jupiter App!
Get quick personal loans with Jupiter.
What are the Benefits of Taking a Personal Loan?
While personal loans come with a higher interest rate compared to other loans in the market, there are some other benefits of ditching other types of loans and taking out this one instead. Here are some of the main benefits of taking a personal loan:
- Easy Application: Taking out a personal loan comes with a simple procedure that can even be done online these days. Further, the approval process is also streamlined, making it a quick and easy procedure.
- Quick Disbursal: Since personal loans are also available online, their disbursal process is also convenient and quick. All you need to do is apply, submit the necessary documents, and wait for your loan application to get accepted, which can be done within hours for some.
- No Collateral: Generally, personal loans do not require you to keep any collateral in turn to get the loan disbursed into your account. So, you can take up a loan without having to keep your home or vehicle as collateral.
- Competitive Interest Rates: You can get a personal loan with competitive interest rates, especially if you hold an excellent credit score.
- Minimum Documents: Personal loans are known to be disbursed quickly as they require minimal documentation. All you need to do is hold a few necessary documents that you already own, like your Aadhar card, PAN card, or passport, depending on the lending institution.
- Flexible Repayment Options: If you have a great credit score, you can take benefit of a flexible repayment option. With different tenures available for repayment, different repayment options are suited as per your needs.
- Improved Credit Score: If you manage to repay your personal loan responsibly within timely instalments, you can improve your credit score, giving you better chances of getting bigger loans with favourable terms.
What are the Factors to Consider When Taking a Personal Loan?
While personal loans can fall in favour of many, there are several factors to consider when taking a personal loan, as, after all, you will have to repay it responsibly. Here are some of the main factors to consider before you take out a personal loan:
-
Interest Rates
Different financial institutions and lenders have different criterias and different interest rates. Before you decide to go for one lender, make sure you compare the interest rates of different lenders and see which one best suits your needs. Go for the lowest interest rate available, as a lower interest rate will mean a lower debt amount to repay over time.
-
Repayment Term
The repayment or loan term is simply how long you must repay the loan. Choosing a shorter term usually means larger monthly payments but less interest paid overall. On the other hand, a longer-term might feel easier on the wallet month-to-month, but it can end up costing more in interest in the long run.
-
Loan Amount
While based on your credit score, you may get a good amount for a personal loan, it’s a smarter choice to only borrow the amount that you need. This disciplined approach helps you avoid taking on too much debt and keeps you from paying interest on funds you don’t truly need. Before taking out a personal loan, make sure to assess your purpose carefully and borrow only what genuinely meets your needs.
-
Additional Charges and Fees
Certain lenders may apply extra fees for personal loans, like origination fees or penalties for early repayment. Make sure you’re aware of all associated charges and consider them carefully when deciding on a loan.
-
Credit Score
Your credit score directly impacts the interest rates lenders may offer. A high score can secure you lower rates, while a low score might result in higher rates or even a declined loan application.
-
Foreclosure Policies
Understanding the terms and conditions for foreclosure can be beneficial. Foreclosure means paying off your loan in full before the end of the loan term. Some lenders allow this after a set period, though they may charge a fee for early repayment, especially with fixed-interest loans.
Documents Required for Personal Loan Application
While documentation requirements may differ from lender to lender, the following are commonly requested when applying for a personal loan:
- Proof of Income: Such as salary slips, bank statements, Form 16, or Income Tax Returns (ITR).
- Proof of Residence: Including an Aadhaar card, passport, electricity bill, or ration card.
- Age Proof: Documents like a passport, Aadhaar card, voter ID, or PAN card.
- Photo Identity Proof: Can include an Aadhaar card, voter ID, PAN card, passport, or driver’s license.
Personal Loan Eligibility Criteria
To qualify for a personal loan, you’ll need to meet certain eligibility criteria set by lenders. These criteria ensure that you are financially stable and able to repay the loan. Key eligibility factors include:
- Age Criteria: Must be 18 years or older.
- Income Source: Proof of a steady income is required.
- Citizenship: You must be an Indian citizen.
- Employment Status: Stable income, whether you’re salaried, running a business, or self-employed, is typically required.
- Credit Score: A good credit score increases your chances of loan approval and a better loan amount.
Plan your loan easily and stay on top of your finances!
Budget better with a Personal Loan EMI Calculator!
How are a personal loan’s interest rates and tenure determined?
Below are some factors that determine your personal loan’s tenure and interest rates:
- Income: Your income is the first thing a lender sees. This gives them an assurance that you will be repaying their loan on time. Make sure you have a stable and reliable income to prove the lender that you will make monthly payments without defaulting.
- Payment History: If you have previously owned a credit card or taken any loans and make timely payments, it will be easier for you to bag low-interest rate personal loans as your payment history will be strong.
- Debt-to-income Ratio: If a large portion of your income already goes toward existing debts, lenders may raise your interest rate to offset the risk that you might struggle to manage a new personal loan.
- Loan Tenure: Lenders might offer you a lower APR for shorter loan terms and a higher rate for longer ones. This is because they know that the longer the loan period, the greater the chance that changes in your finances could make payments harder to manage.
How to Get a Personal Loan from Jupiter?
Jupiter is the one app that you need to manage your money effortlessly! Whether you are new to the app or already an existing user, here’s how to get a personal loan from Jupiter:
1. For New Users
- Download and open the ‘Jupiter: UPI & Credit Cards’ app.
- Select ‘Get Started’ and fill in your basic details to create an account.
- On the ‘Select a Jupiter Experience’ screen, choose the ‘Get a loan in 2 minutes’ option and then select ‘Personal Loan.’
- Enter the required details to check your eligibility.
- Select your preferred loan amount and EMI plan to view the principal, interest, and repayment amount breakdown.
- Complete the KYC process by following the provided steps.
- After KYC completion, the loan amount will be disbursed to your account.
2. For Existing Users
- Open the Jupiter App.
- Go to the ‘Loan’ section and click on the ‘Apply Now’ button.
- Fill in the requested details in the loan application.
- Press ‘Check Eligibility’ to see the loan amount for which you are eligible.
- Select your preferred loan amount and EMI plan. A breakdown of the principal, interest, and repayment amount will be displayed.
- Complete the KYC process by following the provided steps.
- After completing the KYC, you will receive the loan amount.
Thinking of taking a personal loan? Don’t look twice
Apply for one on the Jupiter App!
Get quick personal loans with Jupiter.
Common Mistakes to Avoid When Applying for a Personal Loan
While personal loans can be a great tool for quick financial emergencies, one can unknowingly fall into a pit of mistakes when not properly planned for making this big financial decision. Here are five common mistakes to avoid when applying for a personal loan:
-
Taking More Loan Than Required
The longer the loan term you take, the more you will be charged with the interest rate during your entire personal loan repayment tenure. Hence, make sure you only take the necessary loan amount required so you don’t shake your financial budget.
-
Missing Monthly Payments
Another mistake that most people make after taking a personal loan is sometimes missing out on monthly payments. This may happen if you end up taking more loan amount than required and you fail to make monthly repayments as they may not fit your budget. Avoid doing this, as that can negatively impact your credit score.
-
Not Considering Your Credit Score
Your credit score plays a crucial role in deciding whether you qualify for a loan and what interest rate you’ll be offered. Interestingly, some lenders might impose steeper origination fees for borrowers with lower credit scores. That’s why it’s essential to check your credit score before applying—this way, you’ll have a clearer idea of what to anticipate in terms of expenses.
-
Neglecting Penalties and Fees
Keep an eye out for any hidden fees and penalties by carefully reviewing the lender’s terms and conditions. Although most lenders are transparent about any penalties or charges, you should be in charge of your own financial decisions by making it a point to look out for any hidden charges. This will help ensure you don’t end up with less money than you need to meet your financial goals.
-
Overlooking the Terms and Conditions
As consumers, we often forget to read the long list of terms and conditions simply because that’s too much information to read. Avoid doing that when taking out loans. Make sure you read the fine print carefully before signing any deal.
Frequently Asked Questions (FAQs)
Can I apply for a joint personal loan?
Yes, you can apply for a joint personal loan with your partner. Both applicants will share the loan amount and be responsible for repayment. This can increase your chances of approval and may lead to better interest rates, as the combined income and credit profiles can strengthen the application.
Do I have to deal with any foreclosure charges on personal loans?
No, personal loans are unsecured, meaning they are not backed by collateral like a home. Therefore, there are no foreclosure charges associated with personal loans. However, failure to repay can result in negative impacts on your credit score and potential collection actions.
How quickly can I get a personal loan?
The time it takes to get a personal loan varies by lender. Generally, you should receive funds within a few hours to a few days after approval. Online lenders often offer faster processing, while traditional banks may take longer due to their application and approval processes. To speed up the process, ensure you have all the necessary documents when applying.
What is the difference between a personal loan and a cash loan?
A personal loan is a broader term for a loan taken for various purposes, typically with fixed terms and interest rates. It can be unsecured or secured and is repaid in instalments. A cash loan, called a payday loan or cash advance, is usually a smaller, short-term loan meant to cover immediate expenses. Cash loans often have higher interest rates and are due on your next payday, making them more costly in the long run.
What is the maximum personal loan amount that I can borrow?
The maximum personal loan amount you can borrow varies by lender and depends on factors like your credit score, income, and debt-to-income ratio. Typically, personal loans range from ₹50,000 to ₹40 lakh. Some lenders may offer higher amounts, but it's essential to check with individual institutions to understand their specific limits and requirements.
Are personal loans better than credit cards?
Personal loans can be better than credit cards for larger expenses due to typically lower interest rates and fixed repayment terms. They offer structured payments, making it easier to manage budgets. However, credit cards provide more flexibility for smaller, ongoing purchases and rewards. The choice depends on your financial needs and repayment capacity.
What is the interest rate on a personal loan?
Interest rates for personal loans can differ widely depending on the lender, your credit score, and the current market trends. In India, these rates fall between 10.75% and 28% per year. If you have a solid credit history, you’re more likely to secure a lower interest rate.
What is the maximum loan duration for a personal loan?
The maximum loan duration for a personal loan typically ranges from one to seven years, depending on the lender. Some institutions may offer longer terms, but this can vary based on the loan amount, interest rates, and your credit profile. Always check with individual lenders for their specific terms.
What is a personal loan used for?
A personal loan can be used for various purposes, including consolidating debt, covering medical expenses, funding home renovations, financing a wedding, or paying for educational costs. It provides borrowers with flexible financing options to address both planned and unexpected expenses.
What is a prepayment penalty on a personal loan?
A prepayment penalty on a personal loan is a fee charged by some lenders if you repay the loan before the end of its term. This fee compensates the lender for the interest lost due to early repayment. Not all loans have prepayment penalties, so it’s essential to check the loan terms before committing.
What credit score is needed for a personal loan?
The credit score needed for a personal loan varies by lender, but generally, a score of 650 or higher improves your chances of approval. Higher scores, around 750 or above, can help secure better interest rates. Some lenders may accept lower scores, but this often comes with higher interest rates and stricter terms.
Authors
Priyanka Rao
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
Lifetime Free
Issued by 