Are you dreaming of visiting your favourite country but finding yourself short on funds? Or perhaps you're eyeing a luxury gift or need quick cash for miscellaneous expenses? A personal loan might be the solution you’re looking for! While personal loans are a popular choice for many, it’s crucial to understand whether this option is right for you before making any commitments.
Personal loans primarily depend on your credit score, financial status, and current market conditions. To obtain a personal loan, you must adhere to specific guidelines and meet the eligibility criteria set by the lending institution.
If you qualify, the bank will provide you with an interest rate based on several factors, which will determine how you repay the loan. Here’s a step-by-step breakdown of the personal loan process:
After selecting the bank from which you wish to secure a personal loan, you need to begin the application process. This involves understanding and fulfilling the required formalities.
Once you’ve applied, the next step is completing the KYC (Know Your Customer) process. This requires submitting essential documents, such as proof of identity, address verification, income statements, and your PAN card. Check with your bank for the specific documents they require.
After submitting your documents, the bank will review your application, which typically takes around 5-7 business days. If you meet their eligibility criteria, your personal loan will be approved.
Upon approval, the loan amount will be transferred to your bank account. While many banks transfer the funds instantly, some may take up to 24 hours.
You are required to repay the personal loan within the specified tenure. The bank will charge you an interest rate based on various factors, and you’ll need to make repayments on a monthly or yearly basis, depending on the bank's terms.
Many banks allow you to repay your personal loan ahead of schedule or to foreclose it. However, be aware that some banks may impose a pre-closure fee, so it’s wise to check this in advance to avoid any unexpected costs.
You might be wondering how the Equated Monthly Instalment (EMI) is calculated for your personal loan. These three factors play a role in determining the EMI amount:
Interest rates vary by bank, but they are usually calculated using a simple formula:
For annual interest calculation,
Annual Interest =12P×R×T
Where:
This means that the monthly interest can be calculated as:
For monthly interest calculation,
Monthly interest = PXRXT/12
Let’s consider an example with a loan amount of ₹12 lakh and an interest rate of 11%.
Annual Interest Calculation: 11/100 X 12,00,000= 1,32,000
Monthly Interest Calculation: 1,32,000/12 = 11,000
Thus, the interest added to the EMI will be ₹11,000.
While different banks may have varying eligibility criteria, here are some common factors you need to consider:
Ultimately, the bank holds the discretion to approve your personal loan application.
Personal loans can be an excellent option for many, but it’s important to note that they often come with high interest rates, which can strain your finances if not managed properly. Always read the terms carefully before signing any documents, and consider taking out a personal loan only if you genuinely need it.
Avoid large amounts or long tenures, especially if you already have existing loans, as this could complicate your financial situation. Being mindful of your choices can help you prevent regrets in the future, as personal loans represent a long-term commitment.
