9 factors to consider while choosing a personal loan

Thus, a rapid rise of approximately three times in the number of new DEMAT accounts in FY21 (vs. FY20) opened post first wave of the pandemic is a clear reflection of an increase in interest in stock markets.

Besides, the processing time and disbursal of a personal loan is relatively quick . This makes it an attractive option for those looking to avoid elaborated paperwork to get a loan approved.

Personal loan is an unsecured loan offered to the borrower without any collateral against the sum borrowed. While other loans are specific in nature (like car or home loan), a personal loan can be taken to suffice any financial need.

A personal loan applicant is required to submit proof of address, identity and income. Certain banks have a list of pre-approved customers for personal loans as well. No major documentation is necessary in these cases.

The loan amount will depend on the borrower's annual income and credit score. Most banks offer a minimum of Rs 50,000 as personal loan while certain NBFCs can lend smaller amounts too.

Banks expect the borrower to have a minimum credit score of 750 or above to be eligible for a personal loan. Comments on any missed EMIs, mentioned in the CIBIL report, is also reviewed before approvong a personal loan application.

The credit score will also determine the maximum loan and corresponding interest rates that will be levied by the bank. Since personal loans are high risk for the banks, they tend to be extra cautious while approving one.

The rate of interest charged against personal loans will be higher (between 10.99% and 22% p.a.) compared to other loans. This is purely it's collateral free and puts the bank at a greater risk of loss.

The repayment duration for personal loans can be between 1-5 years. Higher the loan tenure, greater the rate of interest charged by the bank.

Banks can demand a guarantor for personal loan if they are not confident of the borrower’s repayment capacity. In case the primary borrower misses the EMIs, it will negatively impact the guarantor's credit score too.