A personal loan is a great option for people in need of quick and convenient financing. This form of credit has also seen a rise in recent times. According to an RBI report, outstanding credit for personal loans has jumped to Rs.29.18 lakh crore from Rs.26 lakh crore in just one financial year. This is a significant 12.1% growth compared to the overall bank credit growth of 6.7%.

The rise in personal loan popularity is primarily due to less stringent lending terms by financial institutions offering the lowest rate personal loan. Moreover, the advancement of technology allows for faster verification and disbursal of personal loans, further boosting its popularity.

Complete guide on personal loans

A personal loan is an unsecured credit facility offered to individuals based on their personal credit history and repayment capacity. Also called consumer loans, this type of credit generally has a higher interest rate than secured loans.

Personal loans come with no end-use restrictions. Therefore, borrowers can avail this form of credit for any requirement. Some common uses of personal loans are funding emergency expenses, weddings, vacations, home renovation, education, business growth, debt repayment, etc.

Personal loan benefits

There are several benefits of availing of a personal loan. Some of these include:

• No end-use restrictions: Borrowers can use the loan amount for any purpose. This makes personal loans highly versatile borrowing instruments.
• No collateral required: Financial institutions offer personal loans based on the borrower’s personal credit history and repayment capacity. Therefore, these loans do not require any collateral.
• Fixed interest rate: The interest rates on personal loans are fixed for the entire tenor at the outset. Borrowers can therefore plan their finances and EMIs accordingly.
• Flexible tenor: Personal loans are usually available for 1 to 5 years. Therefore, borrowers can opt for a repayment tenor per their comfort. 

Personal loan eligibility criteria

Financial institutions usually undergo a strict background check on borrowers applying for a personal loan. Though these parameters vary with lenders, here are some common requirements that applicants need to meet to avail a personal loan:

• Age limit: The age limit for borrowers ranges between 21 and 67 years.
• Credit score: A credit score measures an individual’s creditworthiness. To be eligible for a personal loan, applicants generally have to have a credit score of 750 and above.
• Income: The applicant’s income is a vital criterion for personal loan eligibility. Since the loan repayment capacity largely depends on a borrower’s income, financers usually ask for detailed income proof of the applicant.
• Employment history: Personal loan eligibility largely depends on borrowers’ nature and employment history, present working duration, recent job switches, etc. 

Knowing these eligibility criteria will help borrowers understand the reasons for their personal loan rejection and how to avoid them.

Documents required

The basic documents required to apply for a personal loan are:

• Age proof: Aadhaar card, passport, Voter card, etc.
• Address proof: Aadhaar card, passport, Voter card, utility bills, etc.
• Photo identity proof: Aadhaar card, Voter card, passport, etc.
• Bank statements
• Proof of income
• Other documents as required by the lender

How to get a personal loan at the lowest rate?

Personal loans, being unsecured in nature, come with higher interest rates than other types of credit. The rates vary with financial institutions, depending on various factors. Here are a few tips for borrowers to avail of a personal loan at the lowest interest rates:

Step 1: Compare various lenders

Borrowers should compare various lenders and loan terms to find the most suitable credit offer.

Step 2: Maintain high credit scores

Maintaining a good credit score will greatly help individuals secure a personal loan at a lower interest rate.

Step 3: Look for seasonal discounts

Lenders often have ongoing seasonal offers with discounted interest rates on personal loans. Such offers can help borrowers secure credit at significantly lower rates.

Furthermore, several financial institutions extend pre-approved offers to customers on various financial products like personal loans, business loans, credit cards, etc. This expedites the loan application process and makes it hassle-free. Borrowers can check their pre-approved offers by submitting their names and a few other contact details.

Personal loan EMI calculator

Borrowers can use an online interest calculator to determine EMIs beforehand. Most financial institutions have a calculator on their websites with a step-by-step guide on how to use a personal loan calculator. This online calculator requires only three basic inputs: loan amount, interest rate, and tenor. Upon entering these data, the calculator determines the EMIs payable for a particular loan amount and the total cost of borrowing. Using a personal loan EMI calculator online will help them better plan their personal loan EMI repayment and make an informed decision.

Personal loans are a convenient way to finance emergency monetary requirements and any significant planned expenditure. With this comprehensive guide on how to avail the lowest rate personal loan, borrowers can avail credit hassle-free and meet their financial requirements.