
A Complete Guide to Personal Loan
31 Oct 2022

Table of Content
-
What is Personal Loan? (Meaning & Definition of Personal Loan)
-
What are Different Types of Personal Loan?
-
Personal Loan Eligibility
-
Documents Required for Personal Loan
-
Personal Loan Fee & Charges
-
Personal Loan Interest Rates
-
Your CIBIL Score for Personal Loan
-
Calculate Your Personal Loan EMI
-
Prepayment of Personal Loan
-
Personal Loan Tenure
What is Personal Loan? (Meaning & Definition of Personal Loan)
- A personal loan does not require the borrower to provide collateral and so it is an unsecured loan.
- The purpose or intention of a personal loan is to fund immediate financial contingencies.
- It could be for business capital, marriage, medical expenses, or even foreign trips, though the end use of the capital really depends on the borrower, as long as it is for a legitimate financial need.
Let us look at the different aspects in this complete guide to personal loan.
What are Different Types of Personal Loan?
- Unsecured Personal Loan - borrowed without any asset or collateral.
- Secured Personal Loan - borrowed against collateral, such as a home, car, savings account, insurance, gold or another asset.
- Personal Line of Credit - borrowed whenever needed by accessing a line of credit up to a specific amount.
- Personal Loan Against Credit Card - borrowed against credit card’s available balance.
- Pension Loan - borrowed by retired personnel or senior citizens.
- Wedding loan - borrowed to meet wedding expenses.
- Vacation loan - borrowed to finance a holiday trip.
- Home renovation loan - borrowed to make renovations to the home. It helps to increase the value of the house in the real estate market.
- Consumer durables loan - borrowed to buy consumer goods such as home and electrical appliances.
Personal Loan Eligibility
Since these loans are unsecured- at what rate of interest you will get the loan and how much, whether or not you will get the loan-depend on the credit quality of the borrower. If you have good creditworthiness, you are likely to get the loan at an attractive rate of interest. If you have been a long time customer with the bank, with sound track record of financial discipline, you may also get a pre-approved personal loan sanction.
List of Individuals who are Eligible for Personal Loan
Bank of Baroda lists the following types of employees/self-employed individuals who are eligible for personal loans.
- Employees of Central / State Govt. / Autonomous Bodies/ Public / Joint Sector Undertakings, Public Limited Co. / MNCs & Educational Institutions – with minimum continuous service for 1 year
- Employees of Proprietorship, Partnership firms, Private Limited companies, Trust - with minimum continuous service for 1 year
- Insurance Agents- doing business for minimum last -2- years
- Self Employed Professionals (Doctor, Engineer, Architect, Interior Designers, Tech. and Management Consultants, Practicing Company secretaries etc) -- with minimum 1 year stable business.
- Self Employed Business individuals - with minimum 1-year stable business.
Documents Required for Personal Loan
- Two passport-size photographs
- Income proof: Bank Statement for the last 3 months (if salaried)
- Identity proof: Passport/PAN Card/Driving License/Voters ID/Aadhar Card
- Residence proof: Passport/Aadhaar Card/Utility Bill/Voter ID
- Continuity in Current Job Proof - Form 16/Company Appointment Letter (if salaried)
- Income Tax Returns for the last 2 years (if professional/self-employed)
Personal Loan Fee & Charges
- Processing fees: It is a maintenance & administration fee varying between 0.5% and 2.50% charged by banks while processing a loan.
- Verification charges: To check the loan repayment capacity of the loan applicant, the bank usually hires a third-party agency for verifying the credentials. This extra cost is borne by the applicant.
- Penalty on late EMI: When a borrower fails to repay the EMI on time, a penalty is imposed on him.
- Penalty on prepayment or foreclosure of loan: In case of prepayment or foreclosure of a loan before the stipulated tenure the bank might charge a penalty at the rate of 2% to 4% on the borrower.
- Fees for duplicate statement: A bank might charge a fee of Rs.200 and Rs.500 for generating a duplicate statement of the payment schedule and outstanding loan balance.
Your CIBIL Score for Personal Loan
Your CIBIL Score for Personal Loan enables you:
- To know your credit status
- To get twice or even three times higher loan eligibility
- To get a loan at a lower interest rate
- To get instant personal loan for a longer duration
- To get a loan with minimum paperwork
- To get fast processing & quick loan approval
- To get easy loan approval on rented or leased properties like homes, commercial complexes, apartments, etc.
- To have a higher negotiation authority to bring down your interest rate, customize your loan payment tenure or ask for other benefits of personal loan and privileges
Calculate Your Personal Loan EMI
The formula used to calculate EMI on personal loan is:
EMI = [P x R x (1+R) ^n] / [(1+R) ^ n-1]
Where P= Principal loan amount
R= Rate of interest &
n= Number of monthly installments.
For example:
Let us assume, P= Rs. 3 lakh, R= 15 percent per annum= 15/12= 1.250 per month, N= 60 months then,
EMI = [300000*1.250/100*(1+1.250/100) ^60]/ [(1+1.250/100) ^60-1] = Rs. 7,137
Prepayment of Personal Loan
Prepayment refers to paying off your personal loan before the designated repayment tenure ends. It helps the borrower save on the interest compounded on the principal loan throughout the repayment tenure. It also enables the borrowers to successfully clear the debt and free up his/her finances.
Personal Loan Tenure
Personal Loan tenure may vary from a minimum of 12 months to a maximum of 84 months depending on the borrower’s income, credit history, etc.
Popular Articles
What is Tenure in a Personal Loan and How to Choose the Loan Tenure Smartly?
Related Articles










-
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
Benefits Of Early Education Loan Repayment
When taking an education loan, you need to carefully plan loan repayment even before your EMIs are due. This way, you can save yourself from falling into a financial crisis in the first few years of your career. Now, you may wonder - should I pay off my student loans before the tenure of the loan is complete?
Get Education Loan for Studying MBA in Abroad
Higher education helps extra edge to boost your career. It offers you an opportunity to explore your chosen field in great depth and helps you mould yourself into a knowledgeable professional. One of the most popular postgraduate degrees that students opt for these days is an MBA (Master of Business Administration).
Leave a Comment
Thanks for submitting your details.