Nowadays, people are increasingly meeting their short term monetary needs by using low cost credit facilities, mainly personal loans. The transformational change in the banking and lending systems has greatly benefited consumers as well as financial institutions. Consumers have won because it allows them to borrow money easily and quickly; technology absorption ensured speed and penetration. Financial institutions have improved their profitability because they are able to get a higher interest rate (compared to secured loans) on unsecured loans.
The Reserve Bank Of India (RBI) has an omnibus classification of personal loans, which includes various categories such as consumer durables, gold loans, education loans (table below); however, individuals consider personal loans to be short term unsecured credit facilities, listed below under “other personal loans”.
The growth of the personal loan category clearly exceeded that of gross bank credit. However, even within the overall classification of personal loans, the “other personal loans” category (i.e. the traditional personal loan) has grown even faster than the group as a whole, i.e. i.e. in the past two years, 2020 and 2021, growth has been dizzying 12% and 24% respectively; and, as of December 2021, outstanding personal loans stood at a whopping INR 9.37 lakh crores.
With the uncertainties afflicted by Covid, the demand for personal loans (PLs) has indeed exploded, especially since a personal loan is an unsecured loan, i.e. it is not necessary to give a guarantee. A consequence of the frenzied competition between lenders is the long-awaited digitization of PL processes, from onboarding a client to verifying credentials, closing the arrangement and finally transferring funds. to the borrower.
Digital banking services have primarily reduced bias resulting from human intervention and also provided a much improved user experience by making processes more transparent and easier to navigate.
Are you eligible to apply for a personal loan online
Anyone with a monthly income above INR 15,000 can be eligible for a personal loan. However, banks, NBFCs, and fintech companies have additional criteria for approving personal loan applications.
Apart from the monthly income threshold, consumers are also required to show an acceptable credit score, a healthy repayment history and income stability in the future.
Bankers also check the existing credit facilities used by the customer, if the cumulative monthly repayments are less than the monthly income. If net monthly repayments are already above an individual’s earning potential, the application is likely to be rejected.
How to compare a personal loan online?
Almost all banking channels, NBFC partners and fintech companies clearly mention the interest rate, relevant fees and other terms and conditions on their respective websites. Consumers looking for personal loans can maneuver or browse through individual lenders’ web sections to compare and contrast multiple offers.
- When comparing personal loans online, the main differentiators include the applicable interest rate, processing fees, stamp duty, and any other hidden fees. You can self-assess the authorized loan amount, repayment term and applicable interest rate before continuing with your plans.
- Visiting each bank’s website one by one can be a tedious exercise. It may be faster to access the platforms of some well-established financial services companies, which host a ready comparison of personal loan offers. It is best if you have a rough idea of your own creditworthiness and thus focus your attention on the lenders most likely to suit you, i.e. traditional banks, NBFCs, fintechs.
- If you are a salaried person with a good credit history, you can opt for banks like HDFC Bank, Axis Bank, ICICI Bank, Kotak Mahindra Bank; independent borrowers could evaluate NBFC offers; a borrower new to credit should look to fintech lenders. Conversely, you may wish to leave your contact details and you will receive customer service based phone calls based on which you can make an appropriate selection.
How to apply for a personal loan online?
After an in-depth comparison of the different personal loan offers, you can continue with the selected provider. Some banks, NBFCs, and almost all Fintech companies have easy-to-navigate mobile apps that allow you to apply for various financial products, including personal loans, online.
However, if you are unfamiliar with online processes, all financial entities have voice customer support, through which representatives from the bank, NBFC or fintech company guide you through the process. online request. A “phy-gital” hybrid path is a good option to get familiar with fintechs.
Applicable interest rates
With the ongoing record repo rate scheme maintained by the RBI, a client with a healthy repayment cycle, an outstanding credit rating and a limited number of existing debt securities, can avail a personal loan at a rate of interest as low as 8.5% to 9%.
Typically, the interest rate on a personal loan ranges from 9% to 20%. The interest rate is in the low range for most public sector banks and private sector lenders: these institutions have the luxury (lower cost of funds) of onboarding quality clients, i.e. say those with a top notch credit history.
NBFCs and fintechs can extend PL to new borrowers and those with an unenviable track record; but this easy credit has a relatively higher cost.
term of the loan
The repayment term of a personal loan varies from 12 months to 60 months. As an exception, some banks are willing to extend the tenure beyond the five-year term to accommodate a large note facility.
amount of loan
Generally, you can avail any amount between INR 20,000 and INR 50 lakh as a personal loan. Some new age fintech lenders even give loans of INR 1,000. The principal amount that will be sanctioned entirely depends on the level and sustainability of income, credit rating, repayment history, existing liabilities, rate of credit utilization, dependence on credit for needs periodicity, the frequency of seeking credit facilities and the number of active credit accounts. including functional credit cards.
In addition to interest rates, financial institutions charge a processing fee which can be a fixed amount or a percentage of funds disbursed. In addition, there may be stamp duty charges, as well as penalties for non-repayment or potential failure to meet monthly equivalent installments (EMIs).
A significant percentage of personal loans are fully repaid before the end of the term. It is therefore relevant to confirm the cost of the partial/full prepayment of the loan.
Deadline for receipt of funds
Financial institutions have varied arrangements. With a greater push on digital inclusion, most lenders have created fully digital processes for personal loan applications and disbursements.
Aggressively entering the personal loan market, several lenders are gradually offering instant loans in which funds are credited to your account in less than 30 minutes. Where Instant Disbursement is not on the cards, funds will be received in 4-5 days outdoors.
Although most lenders require an end-use statement, personal loans can be used for the full range of expenses i.e. weddings, moving, renovations, medical emergencies, vacations or others.
Role of credit score
The credit score plays a vital role. Borrowers in the upper percentiles are welcomed by financial institutions and will always have access to the best deals and multiple options. On the other hand, there are only a handful of banks, NBFCs and Fintech companies that are open to extending new credit to subprime borrowers. and people with a faulty repayment history.
With the introduction of online processes, the whole journey of getting unsecured loans has become easier and faster. However, caution is advised lest this newly created borrowing facility drives consumers into a debt trap. In addition, financial institutions must also be careful in granting credit loans, as these loans could lead to higher default rates.
Digital banking, including online borrowing, is a rapidly changing landscape, so you can expect ever-increasing innovation and convenience in the process of obtaining a personal loan.