The best feature of a personal loan is that you can utilise the borrowed money for a variety of purposes. Besides medical emergencies, you can use it to buy a car, relocate to a new place, renovate your own house, plan a family wedding, children’s education or purchase expensive gadgets. Sometimes it can also be taken to consolidate your other loans and debts. Such loans are considered to be the best personal loan as they can be both secured and unsecured by nature, which means you can opt for a personal loan with or without any collateral. Depending on your choice the eligibility for loan criteria gets determined. A variety of financial institutions, credit unions and non-banking financial companies across India offer personal loans at an affordable interest rate.
Personal loan key points
- The maximum personal loan amount can go up to Rs. 25 lakhs. You can utilise the amount to meet a variety of personal as well as professional purposes.
- The interest rate for personal loans varies from one bank to the other, it starts from 8.55% and can go up to 24% for a tenure of 1 to 7 years. The borrower has the freedom to select the tenure as per convenience.
- Unsecured personal loans get disbursed quickly as the loan application process is lenient and does not involve any collateral. This is why credit score and the borrower’s regular income plays a vital role during loan application.
- The repayment process for personal loans is flexible too. You can choose to pay using easy EMI instalments.
- The lenders allow individuals to take a loan of up to 30 times their monthly income.
- A borrower needs to be within 21 years to 68 years of age.
- Salaried individuals, business owners, self-employed professionals, students, independent workers and retired people can apply for a personal loan.
- Unsecured personal loans require an applicant to earn between Rs. 20,000 to 25,000 and possess a credit score of 750 and above.
- The applicant needs to have 6 months to 1-year of experience in the current company.
Personal Loan Eligibility Criteria based on Salary
There are two basic personal loan eligibility criteria, namely Multiplier Method and Flexible Obligation Income Ratio.
Most of the banks and financial institutions abide by the Multiplier Method. As per this method, loan applicants earning more than the regular salary criteria and their association with a reputed company facilitates a quick loan approval process at a lower rate of interest. Here is a chart to get an idea of how much loan you can get based on your current salary using the Multiplier Method –
Expected loan amount
|Rs. 5.40 Lakhs
|Rs. 8.10 Lakhs
|Rs. 10.80 Lakhs
|Rs. 13.50 Lakhs
|Rs. 16.20 Lakhs
Fixed Obligation Income Ratio
As per this method, the loan amount is decided based on the higher instalment sum a borrower can repay after completing his existing EMIs, rents and due bills. Most of the time the lenders ask for 50% to 75% of the net income as loan instalments. If the other expenses exceed this percentage, lenders choose to decrease the sanctioned loan amount or increase the tenure period. Here is an infographic way to get a detailed understanding of the amount of loan you can get using the Fixed Obligation Income Ratio –
Existing EMI of Rs. 3000
Existing EMI of RS. 5000
Existing EMI of Rs. 8000
Existing EMI of Rs. 10000
|Rs. 4.08 Lakhs
|Rs. 3.60 Lakhs
|Rs. 2.88 Lakhs
|Rs. 7.70 Lakhs
|Rs. 6 Lakhs
|Rs. 5.50 Lakhs
|Rs. 4.80 Lakhs
|Rs. 8.88 Lakhs
|Rs. 8.40 Lakhs
|Rs. 7.68 Lakhs
|Rs. 7.20 Lakhs
|Rs. 11.28 Lakhs
|Rs. 10.80 Lakhs
|Rs. 10.08 Lakhs
|Rs. 9.60 Lakhs
|Rs. 13.68 Lakhs
|Rs. 13.20 Lakhs
|Rs. 12.48 Lakhs
|Rs. 12.00 Lakhs
How to apply
- The borrower needs to fill out the loan application form and submit it along with the KYC documents, credit report, bank statement and income certificate.
- Applicants also need to submit details of already existing loans, EMIs and credit card bills.
- After evaluating the authenticity levels of various documents, the loan terms are discussed for a final time.
- Once the borrower agrees to the terms, the loan gets disbursed.
There is no fixed amount when it comes to personal loans. The amount varies from one lender to the other and it depends mainly on the applicant’s credit score, savings history and monthly income. So, it is important to maintain a good credit score and make a thorough comparison between all the lenders before coming down to a final decision.