The novel coronavirus pandemic has turned many of our lives upside down and resulted in a fair amount of unprecedented financial stress for many of us. There have been multiple instances where people’s immediate liquid savings were not sufficient in meeting their sudden rising expenses. As such, the COVID-19 pandemic has seen a sharp surge in emergency personal loans, often being used to pay for immediate, unanticipated expense needs as well as for long-planned dreams and desires. Personal loans are thus loans that can be taken to fulfil a wide variety of needs — medical contingencies, weddings, the purchase of expensive gadgets or necessary household items, home renovations, etc.
Difference between a personal loan and other loans
First and foremost, personal loans are usually unsecured, which means that contrary to other kinds of loans, you do not have to put up securities, collateral or mortgage for the bank to seize in case you default on the loan. So, unlike how the car becomes the collateral for a car loan, or how your home serves as the mortgage for the home loan, personal loans do not come with such a requirement. As a result, the interest rate for personal loans is considerably higher.
Currently, the interest rates for personal loans in banks and non-banking financial companies (NBFCs) in India ranges between 8.45 per cent to as high as 33 per cent. There is also a processing fee one should take note of while looking for personal loans. The processing fee differs from one lender to another.
Here’s how you can apply for personal loans
You will be eligible for personal loans if you have a functional account in the bank and a steady and regular income as a salaried or earning and self-employed individual. Nowadays, personal loans can be availed from not only banks but also NBFCs like Bajaj Finance, Muthoot Finance, Tata Capital, as well as newly emerged personal loan smartphone applications like PaySense.
In the case of banks, you can apply for a personal loan by visiting the website of the bank of your choice and creating or logging into your account. The approval of the loan usually takes about 48 hours to about two weeks, after which the loan amount gets transferred to your bank account or is sent via account payee cheque or draft. Pre-approved loans however are usually faster and require no additional documentation and are offered to long-standing loyal customers of the bank.
Maximum amount that you can borrow
The maximum amount that can be borrowed differs from one lender to another and even depends on factors like the income of the individual and their repayment capacity as well as the status of any existing loans and liabilities they might have. Your current EMIs, credit card debts and credit history will all be taken into consideration by the lender when you apply for a personal loan. There might also be a minimum amount for personal loans depending on the lender. Currently, the maximum loan amounts for personal loans range between Rs 1,000 to Rs 50 lakh, across different Indian banks and NBFCs.
As such, interest rates may also depend on similar factors, like income, credit history, loan amount and tenure, the individual’s relationship with the lender, their loan payment history etc.
Considerations before taking a personal loan
While looking for personal loans, a few factors to consider would be interest rates, processing fees, loan tenures, and precalculated EMIs. It is important to gauge one’s repayment capacity and basing their choice of personal loan on that, keeping in mind the loan duration, the interest, the processing fees, and consequently the amount they have to repay in fixed instalments.