It is said that “a friend in need is a friend indeed.” The same goes for a person in a financial crisis, as personal loan are the ones that come to the rescue. Due to the fact personal loans are easily available to almost everyone, be it salaried class, business class or professionals, there is so much confusion related to eligibility, rates, calculations, taxes, etc. One more myth in the market is personal loans can only be availed by those who are salaried. But now banks have products that cater to the urgent financial crisis of business people/professionals through personal loans.
Worry not; as you read further, all your doubts will be sorted before you apply for a personal loan. And if still any of it exists, the comment section is always open. I feel confident to resolve all your doubts/queries with my experience in dealing with hundreds of personal loans in my decade-long banking career.
What are Personal loans (PL)?
It is a loan instantly available from banks without providing any security or collateral. It is categorized under unsecured debts. Individuals can avail PL to meet any financial exigencies. The best part is banks will never ask for the end use of funds. For example, you can avail a personal loan to come out of the credit card trap, invest in the share market, buy a car or to simply help a friend. No question is ever asked regarding the end use of funds.
Who can get?
Any individual with a minimum age of 21 years can avail of a personal loan. For salaried class, the applicant should be a salaried employee of a private or a Government institution. Students cannot avail PL. The upper ceiling of age for PL may vary from bank to bank. However, most banks generally offer PL up to the age limit of 60 years or till retirement. Personal loan facility is available for self employed as well.
For self employed, personal loan facility is available in selected banks. Like self employed is further categorized as;
Self Employed Professionals: This include doctors, CA, Architects & Company Secretaries, with their own practicing.
Self Employed Non-Professionals: These are business class people engaged in other than professional listed categories above.
Rate of Interest;
The rate of interest varies between 10% and 36%. Salaried people, who avail from a public sector bank (SBI, PNB, etc.) may enjoy a lower interest rate between 10% to 13%. Whereas in the case of private banks like (ICICI HDFC), it may go up to 24%. Self-employed people may find the rate of interest on PL to be on the higher side (say>12% ). However, it depends on so many factors like credit score, credit history, business continuity, income tax return/projections etc.
Now-a-days, PL are available through offline as well as online mode. Usually, it is seen that ROI is charged higher in the case of online mode as compared to offline mode. Banks, mostly from the private sector, do offer personal loans through Online mode, which is like a luxury service availed just sitting on a couch, and it comes at an inflated price.
Required documents;
For a salaried employee, last 03 months salary slip, last 02 years Form 16 or ITR, KYC and letter from company confirming employment, 06 months bank statement.
For Self Employed Professionals/ Self Employed Non-Professionals: Last 03 years ITR with balance sheet/computation/profit & loss statement, KYC, 06 months bank statement.
Online vs Offline personal loan;
Now a day’s PL could be availed just by scrolling screen of your mobile, sitting at the comfort of your sofa at home. Almost all private banks are offering personal loans through online mode. This include right from filling up of application through online mode to submission of documents. In such cases, the processing of loan may take a day or two for verification of the documents and thereafter amount is credited to the account. Video KYC is done and documents are signed by applicant digitally.
There are many fintech applications like Axio, Moneytap, Dhani etc. which offers instant personal loan through their applications.
Some bank’s like ICICI, HDFC offers pre-approved personal loan as well, which is being offered through their own mobile application. Such pre-approved loan may not require any documentation. It is also tagged as instant PL.
Needless to say, offline personal loans are availed by visiting personally to the branch and submitting hard copy of requisite document.
| Online Personal loan | Offline Personal Loan | |
| Turn Around Time | TAT is fast. Loan is processed within a day of receiving application. This varies from bank to bank. | Branch officers may take 3-4 days in processing the loan. This varies from bank to bank. |
| Rate of Interest | Higher rate of interest is charged. Third party applications may levy ROI up to 24%. | Much lower as compared to online mode. In offline mode it may not go beyond 13%. |
Required Credit score;
CIBIL Score: Ideally, the minimum required CIBIL score is 700 to avail a personal loan. Public sector banks do not compromise if the CIBIL score is below 700. However, some private lenders provide personal loans even if the score varies between 600-700. A person with a CIBIL score of 600 may still get a personal loan from fintech like HeroFincorp or Moneyview. Though it will attract higher ROI with minimum tenure, lenders may ask for a third-party guarantee as well.
Tax Exemption;
PL are not considered for tax deduction and exemptions. However there are some provisions to claim tax benefits if the end use of funds meet the specific criteria;
| End use of Funds | Tax claim U/S | Deduction Limit |
| Home Renovation | Claimed as tax deduction under Section 80C | Up to Rs 1.5 lakh |
| Purchase/Construction of Residential Property | Claimed as tax deduction under Section 24 | Up to Rs 2 lakh |
| Business Investment | Reduces net taxable profits | No limit |
| Asset Purchase | Reduces capital gains on the sale of the asset | No limit |
As the remedy to avail tax benefits is available on a very few instances, it is advisable to have prior consultation with a tax professional. Better to have sufficient expenditure proofs to show, when required.
Frequently Asked Questions
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