If you need an unsecured loan to meet a pressing financial need, you can apply for a Personal Loan at any financial institutions. However, be sure to check your loan amount eligibility and the criteria you need to meet to be approved for the loan.
The basic criteria
You can apply for a Personal Loan whether you are salaried or self-employed. However, all lending institutions set a few basic criteria that you must fulfil before they process your loan. If you meet these criteria, you’ll need to supply all relevant proofs and documents the bank requires for the loan to be processed.
Eligibility
You will need to fulfil eligibility rules like age, income, job or business stability, and the number of years you have been residing at your current address.
Your age
This can differ based on the lender and whether you are salaried or self-employed. If you’re salaried, you must fall in the 23-60 age bracket. For self-employed individuals, the age limit for loan application will be higher. You need to be 25 years or older, but cannot be above 60 years by the time of loan maturity as the self-employed don’t have a set retirement age.
Your income
Banks and NBFCs set the limit on minimum net salary per month for the salaried. However, for the self-employed it’s decided on the minimum turnover and profit after tax per year. But these can change depending on your place of residence.
Years in job or business
You need to provide proof for the number of years you have been in the current job or business. This gives the bank an idea of your job or business stability. However, the number of years might vary from lender to lender.
Documentation
Personal Loan applicants need to deal with much less paperwork and formalities than other loan types. However, when the bank asks, you do need to be ready with certain documents and affidavits so that they can verify the information and process the loan quickly.
You need to provide the basic ‘Know Your Customer (KYC)’ documents which include ID, age, income, and address proofs.
So, when it comes to a Personal Loan, required documents usually include the following:
KYC documents
When you apply for the loan, keep relevant original documents and copies ready to give to the bank representative you are dealing with. Here are the required papers:
Identity proof
For proof of identity, you can present one of these documents:
- Voter ID
- Aadhaar card
- Passport
- Driving license
- Defence ID
- PAN card
Age proof
For date of birth proof, you can present one of the following:
- Birth certificate
- PAN card
- Passport
- School leaving certificate
Address proof
Here are the documents you’ll need to provide for verification of your place of residence:
- Voter ID
- Passport
- Permanent driving license
- Voter ID
- Property tax bill
- Utility bill (Gas, Electricity, Water, Telephone)
- Ration card
Income proof
- Salaried applicants need to provide the last few months salary slips or Form 16 (which contains details of income and deductions signed by an authorised representative of your employer). Besides Form 16, you also need to provide the bank with your bank statement for the last 3 months that contain a record of your salary.
- Self-Employed applicants should provide IT Returns for the last 2 years, audited balance sheet, and profit and loss account for the past 2 years, accompanied by bank statement from your primary bank account for the last six months.
Other documents
Besides these, you will have to provide complete application form and one or two copies of your photos. The bank may also ask you to sign loan agreements, which you need to study carefully to be sure of all the included clauses like late payment penalties, prepayment charges, and the interest rate.
Your credit history matters
Banks will check your credit rating with agencies like CIBIL to see if you have a good record of debt clearances, including EMIs and your credit card bills. If you have a low credit score, it lowers your chances of quick approval, but there are still a few banks and NBFCs that provide loans to people with bad credit history. If you get the loan, use it as a chance to improve your credit rating by paying your EMIs and clearing the loan on time.
Considerations before borrowing
There are many third party financial websites that help you by providing a feature comparison of Personal Loan offers from different banks. You can use a Personal Loan eligibility calculator in India to set the loan amount required, interest rate you expect to pay, and your EMI limit. The site will then provide you a list of loan offers that closely match your criteria. You can then shortlist a few lenders from this list and approach them.
If you have a good track record of debt clearances, you will have a good credit score. In that case, you can use this point to negotiate better loan terms with the bank. Avoid the temptation to approach too many lenders, and limit yourself to a few to get the best deal.