Types Of Personal Loans (2023 Guide) – Forbes Advisor INDIA

Personal loans have emerged as a versatile and accessible means to address a myriad of financial needs for individuals across India. These loans offer the convenience of quick access to funds without the requirement of collateral, making them a popular choice for various purposes. 

From funding a dream wedding to managing medical emergencies, personal loans have transformed the way people manage their finances. In this article, we’ll delve into the different kinds of personal loans available in India, highlighting their unique features and benefits.

Unsecured Personal Loans

Unsecured personal loans are the cornerstone of the personal lending landscape in India. These loans are versatile and can be used for a variety of purposes, ranging from home renovations to debt consolidation. 

Unsecured personal loans are favored for their hassle-free application process and swift disbursal of funds. Borrowers are not required to pledge any collateral, and the loan approval is primarily based on the individual’s creditworthiness. 

These loans offer flexibility in terms of repayment tenure and loan amount, making them suitable for diverse financial needs.

Salary Advance Loans 

Salary advance loans, often referred to as payday loans, cater to the immediate financial requirements of salaried individuals. These loans provide a short-term solution to bridge the gap between paychecks. 

Borrowers can access a portion of their upcoming salary in advance to address urgent financial needs such as medical emergencies or unexpected bills. While they offer quick relief, borrowers should exercise caution due to higher interest rates associated with short repayment periods.

Wedding Loans

India’s penchant for grand weddings has led to the rise of wedding loans. These loans are specifically tailored to finance wedding-related expenses such as venue bookings, catering, decorations, and attire. 

Wedding loans enable families to celebrate this special occasion without compromising their financial stability. With competitive interest rates and flexible repayment options, wedding loans help turn dream weddings into reality.

Medical Loans 

Healthcare expenses can be overwhelming, especially during medical emergencies. Medical loans provide the necessary funds to cover hospital bills, surgeries, treatments, and medications. 

These loans offer a lifeline to individuals and families grappling with unforeseen medical costs, ensuring that they can prioritize health without worrying about finances.

Education Loans

While education loans are commonly associated with higher education, personal loans also cater to educational needs. Individuals can use these loans to cover school fees, coaching classes, study materials, and other educational expenses. Education loans enable students and parents to invest in quality education without straining their savings.

Travel Loans

For wanderlust enthusiasts, travel loans offer the opportunity to explore new horizons without depleting their savings. These loans cover the expenses of vacations, trips, and travel-related costs, allowing individuals to embark on journeys with peace of mind.

Home Improvement Loans 

Home improvement loans cater to those seeking to upgrade their living spaces. These loans finance renovation or refurbishment projects for residential properties. From remodeling kitchens to adding extra rooms, home improvement loans empower homeowners to enhance their surroundings.

Debt Consolidation Loans

Debt consolidation loans provide a practical solution for individuals juggling multiple debts. These loans enable borrowers to combine various existing debts into a single loan, simplifying the repayment process. With potentially lower interest rates, debt consolidation loans can help individuals manage their finances more efficiently.

Consumer Durable Loans

Consumer durable loans facilitate the purchase of electronic appliances, gadgets, furniture, and other durable goods. Offered by retailers and manufacturers, these loans encourage consumers to make purchases without straining their budgets.

Festive Loans

Festive loans add a touch of celebration to financial management. These loans are tailored for festive seasons and special occasions, offering attractive interest rates and repayment terms. They enable individuals to enjoy festivities without compromising their financial stability.

Bottom Line

The world of personal loans in India is diverse and dynamic, catering to an array of financial needs. Each type of personal loan serves a specific purpose, empowering individuals to manage their finances effectively and achieve their goals. Borrowers should carefully assess their requirements, consider interest rates, repayment terms, and evaluate their financial capability before opting for a personal loan. 

While personal loans provide convenient access to funds, responsible borrowing and timely repayment remain key to maintaining a healthy financial profile. As the financial landscape evolves, personal loans continue to play a pivotal role in empowering individuals to achieve their dreams and aspirations.

Step-by-Step Procedure to Get a Personal Loan 

Getting a personal loan can provide the financial assistance you need for various purposes, whether it’s funding a wedding, managing medical expenses, or taking a dream vacation. Here’s a step-by-step procedure to guide you through the process of obtaining a personal loan in India:

Step 1: Assess Your Need and Eligibility: Determine the purpose of the loan and the amount you require. Check your eligibility for a personal loan, which typically includes factors such as age, income, credit score, and employment stability.

Step 2: Research Lenders: Research various banks, financial institutions, and online lenders to compare interest rates, loan terms, processing fees, and repayment options. Choose a lender that offers favorable terms that suit your financial situation.

Step 3: Check Your Credit Score: A good credit score is crucial for loan approval. Check your credit score through credit bureaus like CIBIL, Experian, or Equifax. A higher credit score can help you secure a better interest rate and loan terms.

Step 4: Gather Required Documents: Different lenders may require various documents, but commonly requested ones include proof of identity (Aadhaar, PAN card), address proof, income documents (salary slips, IT returns), and bank statements. Prepare these documents in advance.

Step 5: Fill Out the Application: Complete the loan application form provided by the lender. Online applications are becoming more popular, offering convenience and quick processing.

Step 6: Submission of Documents: Submit the required documents along with the loan application. Some lenders may allow you to upload documents online, while others might require physical submission at a branch.

Step 7: Verification and Approval: The lender will verify your documents and assess your creditworthiness. If everything is in order, your loan application will be approved. Some lenders offer instant approval based on pre-approved offers.

Step 8: Loan Offer and Acceptance: Once your loan is approved, the lender will provide you with a loan offer detailing the loan amount, interest rate, tenure, and other terms. Carefully review the offer and ensure you understand all terms before accepting it.

Step 9: Disbursement of Funds: Upon accepting the loan offer, the lender will initiate the disbursement of funds. The funds can be disbursed to your bank account either through a cheque, direct transfer, or digital wallet, depending on the lender’s process.

Step 10: Repayment: Repayment of the loan is done through equated monthly installments (EMIs). The EMI amount includes both the principal and interest portions. Set up a standing instruction with your bank to ensure timely EMI payments.

Step 11: Loan Closure: Once you complete the repayment tenure, your loan will be considered closed. Ensure you receive all necessary documents from the lender, including a loan closure letter and no-objection certificate (NOC).

Tips for a Smooth Personal Loan Process

The personal loan process can vary slightly among different lenders, so it’s essential to follow the specific guidelines provided by the lender you choose. By following these steps and being informed about the process, you can secure a personal loan that meets your financial needs effectively.

• Maintain a good credit score to increase your chances of loan approval and secure better terms.
• Compare multiple lenders to find the most favorable interest rates and terms.
• Be transparent with your financial information and provide accurate documents.
• Understand the terms and conditions of the loan offer before accepting it.
• Make timely EMI payments to avoid late payment charges and maintain a positive credit history.

Documents Required to Get a Personal Loan

As of 2023, the documents required to obtain a personal loan in India may vary slightly depending on the lender and your specific financial profile. However, the following are the typical documents that most lenders would require for a personal loan application:

1. Identity Proof:

• Aadhaar Card
• Passport
• Voter ID
• Driving License
• PAN Card 

2. Address Proof:

• Aadhaar Card
• Passport
• Voter ID
• Driving License
• Utility bills (electricity, water, gas) in your name
• Rental agreement (if you are a tenant)

3. Income Proof:

• Salary slips (last three to six months)
• Bank statements (last three to six months)
• Form 16 (if you are a salaried employee)
• Income Tax Returns (ITR) for the last two to three years (for self-employed individuals)

4. Employment Proof:

• Employment ID card
• Appointment letter
• Proof of work experience

5. Credit Score:

• Some lenders may request your credit score report to assess your creditworthiness.

6. Photographs:

• Passport-size photographs for identification purposes.

7. Additional Documents:

• Some lenders might require additional documents based on their specific requirements or if you fall into a particular category, such as:
• Self-employed individuals: Business registration documents, proof of business existence, financial statements (profit and loss, balance sheet), etc.
• Salaried individuals: No additional documents are generally required beyond the ones mentioned earlier.
• Professionals: Qualification certificates and proof of professional practice.
• Pensioners: Proof of pension, bank statements, and other relevant documents.

8. Loan Application Form:

• The lender’s application form needs to be filled out accurately with all required information.

9. Declaration and Undertaking Forms:

• These forms might be required to declare your intent to use the loan for a legitimate purpose and to comply with the lender’s terms and conditions.

It’s essential to note that different lenders might have slightly different requirements, and some lenders might have a more streamlined digital application process that requires fewer physical documents. 

Before applying for a personal loan, it’s recommended to check with the specific lender about their updated document requirements and application process. Keeping all necessary documents ready can expedite the loan approval process and increase your chances of a successful application.

Eligibility Criteria for Getting a Personal Loan in India 

The eligibility criteria for getting a personal loan in India in 2023 can vary slightly among lenders. However, there are some common factors that most lenders consider when assessing an individual’s eligibility for a personal loan. Here’s a general overview of the eligibility criteria:

Age: Generally, you need to be between 21 and 60 years of age to apply for a personal loan. Some lenders may have slightly different age criteria.

Income: Your income plays a crucial role in determining your eligibility for a personal loan. Lenders typically require a minimum income level, which varies depending on the lender and your location. Salaried employees, self-employed individuals, and professionals all have different income criteria.

Employment Type: Here’s the criteria for salaried and self-employed individuals – 

Salaried Employees: Most lenders prefer applicants who have been employed for a certain period (usually at least 6 months to a year) in their current organization.

Self-employed Individuals: Lenders often require a stable business operation for a specific period (usually at least three years) and a consistent income flow.

Credit Score: Your credit score is a significant factor in determining your loan eligibility. A higher credit score (typically above 750) increases your chances of loan approval and might result in better interest rates.

Employment Stability: Lenders prefer borrowers with a stable employment history. Consistent job changes can sometimes negatively impact your loan application.

Debt-to-Income Ratio: Lenders assess your ability to manage additional debt by evaluating your debt-to-income ratio. This ratio indicates the proportion of your income used to repay existing debts, including the new loan.

Location: Some lenders might have specific eligibility criteria based on the city or state you reside in.

Relationship with the Lender: Having an existing relationship with the lender, such as a savings account or previous loan, can sometimes work in your favor during loan application.

Documentation: Meeting the required documentation, including identity, address, income, and employment proof, is essential for loan approval.

Loan Amount: The loan amount you’re eligible for depends on your income, repayment capacity, and the lender’s policy.

Loan Tenure: Loan tenure can impact your eligibility. Longer tenures might be more appealing to lenders as they imply lower EMIs, but the age at the end of the tenure is also considered.

Bottom Line

It’s important to note that meeting these eligibility criteria doesn’t guarantee loan approval. Lenders also consider their internal policies, current economic conditions, and other factors when making lending decisions. 

To enhance your chances of getting a personal loan, maintain a good credit score, have a stable income source, and provide accurate and complete documentation. It’s advisable to check with specific lenders about their eligibility criteria before applying for a personal loan.