A Complete Guide to Personal Loan

What is Personal Loan? (Meaning & Definition of Personal Loan)

• A personal loan does not require the borrower to provide collateral and so it is an unsecured loan.
• The purpose or intention of a personal loan is to fund immediate financial contingencies.
• It could be for business capital, marriage, medical expenses, or even foreign trips, though the end use of the capital really depends on the borrower, as long as it is for a legitimate financial need.
  Let us look at the different aspects in this complete guide to personal loan.

What are Different Types of Personal Loan?

• Unsecured Personal Loan - borrowed without any asset or collateral.
• Secured Personal Loan - borrowed against collateral, such as a home, car, savings account, insurance, gold or another asset.
• Personal Line of Credit - borrowed whenever needed by accessing a line of credit up to a specific amount.
• Personal Loan Against Credit Card - borrowed against credit card’s available balance.
• Pension Loan - borrowed by retired personnel or senior citizens.
• Wedding loan - borrowed to meet wedding expenses.
• Vacation loan - borrowed to finance a holiday trip.
• Home renovation loan - borrowed to make renovations to the home. It helps to increase the value of the house in the real estate market.
• Consumer durables loan - borrowed to buy consumer goods such as home and electrical appliances.

Personal Loan Eligibility

Since these loans are unsecured- at what rate of interest you will get the loan and how much, whether or not you will get the loan-depend on the credit quality of the borrower. If you have good creditworthiness, you are likely to get the loan at an attractive rate of interest. If you have been a long time customer with the bank, with sound track record of financial discipline, you may also get a pre-approved personal loan sanction.

List of Individuals who are Eligible for Personal Loan

Bank of Baroda lists the following types of employees/self-employed individuals who are eligible for personal loans.

• Employees of Central / State Govt. / Autonomous Bodies/ Public / Joint Sector Undertakings, Public Limited Co. / MNCs & Educational Institutions – with minimum continuous service for 1 year
• Employees of Proprietorship, Partnership firms, Private Limited companies, Trust - with minimum continuous service for 1 year
• Insurance Agents- doing business for minimum last -2- years
• Self Employed Professionals (Doctor, Engineer, Architect, Interior Designers, Tech. and Management Consultants, Practicing Company secretaries etc) -- with minimum 1 year stable business.
• Self Employed Business individuals - with minimum 1-year stable business.

Documents Required for Personal Loan

• Two passport-size photographs
• Income proof: Bank Statement for the last 3 months (if salaried)
• Identity proof: Passport/PAN Card/Driving License/Voters ID/Aadhar Card
• Residence proof: Passport/Aadhaar Card/Utility Bill/Voter ID
• Continuity in Current Job Proof - Form 16/Company Appointment Letter (if salaried)
• Income Tax Returns for the last 2 years (if professional/self-employed)

Personal Loan Fee & Charges

• Processing fees: It is a maintenance & administration fee varying between 0.5% and 2.50% charged by banks while processing a loan.
• Verification charges: To check the loan repayment capacity of the loan applicant, the bank usually hires a third-party agency for verifying the credentials. This extra cost is borne by the applicant.
• Penalty on late EMI: When a borrower fails to repay the EMI on time, a penalty is imposed on him.
• Penalty on prepayment or foreclosure of loan: In case of prepayment or foreclosure of a loan before the stipulated tenure the bank might charge a penalty at the rate of 2% to 4% on the borrower.
• Fees for duplicate statement: A bank might charge a fee of Rs.200 and Rs.500 for generating a duplicate statement of the payment schedule and outstanding loan balance.

Your CIBIL Score for Personal Loan

Your CIBIL Score for Personal Loan enables you:

• To know your credit status
• To get twice or even three times higher loan eligibility
• To get a loan at a lower interest rate
• To get instant personal loan for a longer duration
• To get a loan with minimum paperwork
• To get fast processing & quick loan approval
• To get easy loan approval on rented or leased properties like homes, commercial complexes, apartments, etc.
• To have a higher negotiation authority to bring down your interest rate, customize your loan payment tenure or ask for other benefits of personal loan and privileges

Calculate Your Personal Loan EMI

The formula used to calculate EMI on personal loan is:

EMI = [P x R x (1+R) ^n] / [(1+R) ^ n-1]

Where P= Principal loan amount
R= Rate of interest &
n= Number of monthly installments.

For example:
Let us assume, P= Rs. 3 lakh, R= 15 percent per annum= 15/12= 1.250 per month, N= 60 months then,
EMI = [300000*1.250/100*(1+1.250/100) ^60]/ [(1+1.250/100) ^60-1] = Rs. 7,137

Prepayment of Personal Loan

Prepayment refers to paying off your personal loan before the designated repayment tenure ends. It helps the borrower save on the interest compounded on the principal loan throughout the repayment tenure. It also enables the borrowers to successfully clear the debt and free up his/her finances.

Personal Loan Tenure

Personal Loan tenure may vary from a minimum of 12 months to a maximum of 84 months depending on the borrower’s income, credit history, etc.