1) Before purchasing a personal loan, you should determine the amount of loan you need to borrow via a personal loan in India. However, you should be using this loan as a last resort once you are done with other sources of money.

2) You should select the kind of personal loan you want among the various options available such as the unsecured loan, loan against securities, loan against gold, loan against car, etc.

3) After careful analysis, you can find the best deal on personal loan and shortlist the top three providers of loan

4) You should visit the branches of these top three providers or call reputed representatives of these providers. You should do the complete enquiries and also read about the fine print of the terms.

5) You can also decide on the provider on the basis of the loan amount the providers are ready to sanction, the various charges and the applicable interest rate.

6) Once you have decided about your provider, you can collect all the required documents and submit at the bank branch for loan approval along with the loan application.

7) After the approval of the loan, you can take disbursement of the loan amount by cheque into your account.

Eligibility– The personal loans are usually provided to only resident individuals. The minimum age of taking a personal loan is 25 years and maximum age is 65 years. The age factor is used to make the judgement if a person is fit to work and earn during the loan duration. The minimum salary requirement is used to estimate the repaying ability of the person. Another requirement is the current profession and no of years in a job. It is used for checking the stability of a person in his job and his earnings. The no of years in current residence requirement is used for checking the stability of the person stay in that city.

The repayment of a personal loan is done by issuing post-dated cheques for the complete duration of the loan. These cheques are prepared in the name of the lender. The amount of the EMI or equated monthly instalments is the same as the amount of the post-dated cheques. There are some lenders that allow you to repay by following the standing instructions on your bank account or by directly deducting the amount at a source from your salary each month.

The time period of receiving your loan money varies from lender to lender. Usually the lenders promise to offer the loan within seven working days. In case, you would like to avoid any further delays, then you should keep all the necessary documents ready such as the post dated cheques (PDC). The banks from where you ask for your PDCs take at least a day or two’s notice for offering you the cheques. After the submission of all the required documents, the loan is disbursed. Once your lender approves your personal loan amount, the disbursal of the loan is done either by cheque or draft. There are many government owned banks that require you to visit the nearby branch for receiving the loan. In addition to this, there are many private and foreign owned lenders that offer the loan amount at home with their Direct Sales Associate network.

You can also take the advantages of the relationship discounts. The lenders provide relationship discounts in case you are already into a good relationship with them. Thus, if you are already involved in banking with the lender then you can negotiate for relationship discounts while taking a personal loan from such a lender. The discounts are available in the form of reduction in personal loan interest rates or reduction of other charges. Some of the other benefits available include free credit card with charges waived for the first year or other additional services.

In case you have a good inflow of money, you may decide to make the pre- payment of your loan. The prepayment is the option for repaying your loan before the end of the contracted period of the repaying your personal loan. There are many banks that charge a heavy prepayment penalty of about 2% to 5% on the principal outstanding amount. In spite of this heavy prepayment penalty, it is recommended to prepay your loan amount, if you possess the money with you. It is advised to read the complete loan buying guide along with the fine prints of terms and conditions before purchasing a personal loan.

Aware of the applicable charges – You should be aware of the various charges and fees levied on every step of the loan processing. You should not look only at the personal loan interest rate for determining the cost of the loan. You can also look at the charges applied by the lender in the process. Some of the commonly applied charges are processing fees, cheque bounce charges, prepayment fees, non payment penalties and documentation charges. As per your own requirements, you can decide to pay the loan earlier than the tenure and in that case, you can compare the prepayment fees applied across all loans.

Increase eligibility by combining incomes – You can increase the eligibility of taking higher loan amount by combining the incomes of your spouse or your parents. It will increase the amount of personal loan granted to you.

Decide the repayment period as per your needs – You should select a personal loan repayment period as well as schedule that suits your requirements well. You can select a smaller repayment period in case you expect that you will have the money in the short run.

Get discounts on lending rate by using the existing relationships – You can get discounts on the lending rate if you have an existing banking or a loan relationship. You can negotiate discounts on the lending rate on the basis of your proven track record. The bank can consider the healthy balances in your savings account / fixed deposit or your proven track record of repayment for considering that you have sound financial standing.

Purchase Loan Protector Insurance – Nowadays, there are many banks and NBFCs that provide group life insurance as loan protector insurance. By purchasing this insurance, you can ensure that the insurance company pays the lender in event of any unfortunate incident. It is an affordable way of offering protection to the dependants from your liabilities.

There are basically two types of interest rates including fixed rate and floating rate. A fixed rate is the interest rate that remains same during the complete tenure of the loan irrespective of the current market conditions. It does not change as per the changes in the market rates. Personal loans and other short terms usually have fixed interest rate. On other hand the floating rate is the interest rate that changes based on the existing market conditions. Most of the long term loans such as home loans have floating interest rate.

If you are going to avail a personal loan then you should understand the type of rate applicable for your loan. You should know what type of rate you will be charged and if it gets changed during the tenure of the loan. You should also review your interest rate periodically as it may change in case of floating rate. You can get a loan at cheaper rate if the interest rates come down. You should also compare and negotiate the interest rates offered by the various banks as it vary from one bank to other bank.

Identity Proof – You can provide any one of the following listed documents as a valid proof for your identity.

- Passport (It can also be used as a address proof )

- Government identity card

- Photo PAN card

- Voter’s identity card

- Defence Identity card

- Driving License

- Ration card with photograph

Apart from these, you will also need to submit the passport size photographs for completing the identification requirements.

Address Proof – You can provide any one of the following listed documents as a valid proof for your Address.

- Passport (Can also be used as proof of identity)

- Electricity bill

- Society outgoing bill

- Life Insurance Premium receipt

- Telephone (land/mobile) bill

- Driving licence

- Voter’s identity card

- Ration card

- Proof of Office for Self Employed (any one of these as Lease deed, Utility bill, Municipal Tax receipt, title deed)

Age Proof – You can provide any one of the following listed documents as a valid proof for your Age.

- Secondary School Leaving Certificate (Class 10)

- Pension Payment Order

- Birth Certificate issued by the competent authority

- Photo Ration Card

- Voters Identity Card

- LIC Policy or Premium receipt clearly indicating the applicant’s age

- Passport / Defence ID Card / Govt ID Card (the document must have cardholder’s photo, signature and date of birth)

Income Documents – You can provide any one of the following listed documents as a valid proof for your Income.

- Salaried Individuals

- Latest acknowledged IT return

- Bank statements for the last 3 months

- Latest salary slip showing statutory deductions

- Proof of continuity of employment – Form 16 or appointment letter

Self Employed Individuals – You can provide any one of the following listed documents as a valid proof for Self Employment.

- Computation of income for the last 2 years certified by a C.A. OR

- Bank statements for the last 6 months AND

- P&L and balance sheet for the last 2 years certified by a C.A. AND

- Copies of acknowledged IT returns for the last 2 years

Disadvantages of personal Loans in India are as follows:

High interest rates – One of the major drawback of personal loan is the higher interest rates applied on the loan amount. They are unsecured loans and banks won’t ask for collateral, security or any sort of guarantee prior to issuing any personal loan. Thus, in a way it becomes a risky proposition for banks. In order to offset this risk, banks offer the personal loans at high interest rates. Another point is that personal loan interest rates changes from person to person. In case of person with good existing loan repayment track record and who is serving in a reputed MNC or public sector organization then he is likely to get a low interest rate on personal loan. The same rate of interest will be more for a person that do not fulfil the standard norms. Thus, a person who is a low risk borrower as per the bank will get a personal loan at 16% interest rates and it can climb up to 30% or more in case of others.

Not available to everyone – Another disadvantage of personal loans is that they are not available for everyone as the banks enforce strict income, residence and employment criteria prior to issuing any personal loan. Banks will only provide personal loans to those where they see the minimum risk involved.

No prepayments in parts – In case of a personal loan, the banks do not accept the prepayment in parts or instalments. The prepayment of personal loan needs to be done as an entire amount. Banks in India do not allow the prepayment in parts of any personal loan. Also, in case if a user has the good cash flow and he wants to pay back the entire loan, there is a prepayment penalty of 2-5 percent is charged on the outstanding amount that needs to be paid to the bank for making any prepayments.

Moreover, the lending rates also depend on your profile in regards to your job and address. In case, you are being employed with a MNC and residing at a location approved by the lender then lender might provide you a low rate personal loan. However, on other hand, if you are living in a chawl and working with a proprietorship then will be charged a higher lending rate. The minimum amount that can be issued as a personal loan is Rs 10,000 and the maximum amount is Rs 10 lakhs.

The maximum repayment period varies widely. However, some lenders allow the personal loan repayment period to a maximum of 7 years. A majority of the lenders keep the repayment period to a maximum of 3 years. You can get a personal loan, in case you are employed and earn a monthly income. You can be either a salaried individual or a self-employed professional. The amount of loan eligibility varies on the basis of the current earnings of the person. The service charges or processing charges levied is 2% of the loan amount and it may vary across various lenders.

Credit card cash withdrawal – It is related to making the cash withdrawals through your credit card from the ATM. It is a type of Unsecured Loan. The sanction time in this case is immediate as you have already received a pre determined credit limit. The tenure of loan is determined by user and the interest Rate ranges from 36%-45%. There are no processing charges and the loan eligibility criterion is based on your monthly income. It is used in the times of emergency cash requirements where you can repay the amount at the earliest.

Loan against Security/Gold – In this case, you can take a personal loan for your personal usage and you need not have any security or guarantor. It is taken as a line of credit or as a one-time loan based on the valuation of your fixed deposit, shares, LIC policy or gold. It is a type of secured loan and the sanction time is 7 working days and the tenure of loan is from 03 -60 months. The interest rate varies from 10.5%- 20%. The processing charges are low and the loan eligibility criteria is based on your monthly income as well as the value of security or gold being kept as collateral. The amount of loan is typically given up to 50% of the value of the security. It is used in time when you want to use a short term loan at the cheapest cost.

The banks and NBFCs are focussing on the unsecured loans products because this segment promises high business that covers for any defaults. The variation in the interest rate on various personal loans ranges from 14 percent to 30 per cent. In order to enhance the credits off take, the State Bank of India ( SBI) has come up with a major initiatives by lowering the income limit of borrowers from Rs 6,000 per month to Rs 3,000 per month. It has resulted in the lowering of the interest rates across the board by 0.25 to 0.50 per cent. This move was intended to meet the demand from lower as well as middle income groups for lowering the minimum net monthly income (NMI) predetermined for taking a personal loan.

The SBI was earlier giving the personal loans to individuals up to Rs 10 lakh for various purposes such as travelling, marriage, medical treatment, and other purposes, in case they had Net monthly income of Rs 6,000 or above. All government employees, PSUs, profit-making public/private limited companies and institutions are eligible under the modified scheme called as festival loan scheme for public. As per the scheme, the minimum amount of loan is Rs 5,000 and maximum amount is four times the NMI or Rs 50,000.