Personal loans are the ideal financing options Indians prefer to go for with around 60% growth in the last four years. Before the rise of NBFCs, only selected employed individuals could apply for a personal loan.
With the emergence of fintech companies, you can now avail these loans even if you are self-employed. Furthermore, you don’t have to go through much hassle when taking them.
You can utilise these loans both for your personal and business expenses. For example, buy a 4-wheeler, arrange a wedding, go on a foreign vacation, fund higher education, etc. Or, purchase equipment for your office, rent/lease a space, increase working capital, expand your operations.
Check out the following before you apply for personal loans:
1. High unsecured financing
NBFCs offer up to Rs. 30 Lakh to self-employed individuals. These loans are also unsecured; so, you don’t have to pledge an asset to avail them.
2. Repayment tenors with flexibility
The repayment tenors for instant personal loan range from 12 to 60 months. A shorter tenor will have high EMIs but will keep the cost of loan (principal + interest) low. On the other hand, longer tenor will increase your cost of loan but lower your EMIs.
3. Quick approval and disbursal
Personal loans are exceptional in emergencies as they are approved within 5 minutes and disbursed in 24 hours. Thus, medical situations and financial crises in your business become easily addressable.
4. Only a few documents needed
Financial institutions require the following documents when you apply for a personal loan:
- KYC documents (Voter ID, Aadhaar, Driving License, Passport, PAN, etc.)
- Bank account statements of the last 3 months.
- Income tax returns of the previous year.
- Business turnovers of the previous year audited by a CA.
Do note that lenders might also require additional documents.
5. Minimalistic eligibility criteria
You have to satisfy the following personal loan eligibility criteria:
- Age between 22 and 55 years.
- Business vintage of at least 3 years.
Self-employed applicants may also need to have a minimum credit score of 750 to apply. You have to improve your CIBIL score if it is low. Availing a credit card can help you precisely with that. Keeping your credit utilisation under 30% and paying the total amount due within the deadline will increase your credit score.
A lender may offer you low interest rates personal loan if you have a credit score of 750 or more.
6. Online account access
Financial institutions give you the option to manage your loan account online. You can pay your EMIs, check your balance, and perform other functions in your account.
How to apply for a personal loan?
NBFCs have made it possible for you to apply for personal loans online. You can visit the official website of a company to fill your application. The form requires your personal details, annual turnover, business type, nature of the business, etc.
Things to keep in mind before you apply:
-> Calculate your EMIs
Various websites provide loan EMI calculator with which you can calculate your loan EMIs. You have to enter the loan amount, rate of interest, and tenor to check the EMIs.
Using a loan EMI calculator can help you plan your repayment. You will get to learn the EMIs to aim for so that they don’t become a burden.
-> Use a loan eligibility calculator
Applying for an unreasonably high amount can cause the lender to reject your application. Hence, it is better to use a loan eligibility calculator.
A personal loan eligibility calculator will tell you the loan amount you are eligible for based on your income, outstanding credit card debt, and loan EMIs.
-> Clear your existing debt
It is recommended to clear your current loans and pay your credit card debt before you opt for a personal loan.
Lenders may check your debt-to-income ratio before they sanction your loan. Ensure that the ratio is under 50% - i.e. your monthly debt must not be more than 50% of your income.
Compare the available options, especially the rate of interest and charges you have to pay before you apply for a personal loan. Make sure to pay your EMIs in due time to avoid penal charges and improve your credit score.
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Gurgaon, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumnus of Princeton University, USA. During his free time, Arwind teaches children from marginalized sections of society and also work on his blog.