4 minsAugust 19, 2017
A marriage is an alliance of two souls, and families.
Every parent, every family, perhaps, endeavours to see their children wed in pomp and opulence. This occasion marks a significant milestone in our lives as adults, and hence, parents wish to make it a grand event for their son/daughter.
Prudent savings and investing, of course, helps to plan and achieve this grand occasion, but today availing of a personal loan or a wedding loan, to an extent, is also possible.
These days, it is quite common to receive a call or at least one e-mail a day about instant or pre-approved personal loan. Haven’t you received one? Often, these offers are quite attractive and tempting.
Credit to the RBI for adopting an accommodative stance in its monetary policy. Plus, the documentation is minimal and comes with quick approval. The maximum personal loan that can be approved of is Rs 15 lakh, while the minimum is Rs 50,000.
You also have a chance to earn Axis eDGE Reward points and these
can be redeemed against some exciting offers.
Who is eligible for a personal loan?
A salaried individual, self-employed——whether in business or profession——are eligible to apply. You need to be between 21 to 60 years of age with a certain monthly net income criteria set by the lender. Axis Bank’s
minimum net monthly require is Rs 15,000.
Personal loan is an ‘unsecured loan’, and banks conduct a thorough due diligence. They check your financial stability. This means that salaried individuals need to have a minimum two years of total work experience, while self-employed
a total of five years.
Moreover, the location you reside in, be it urban, semi-urban, rural area, pin code; type of residence (whether on rent, family-owned, or self-owned); and the number of years you’ve lived there are determining factors. Banks will scrutinize
your credit report; consider the credit score to judge your credit worthiness. Higher the credit score (of 750 and above), the better it is for you.
Now as for the documentation, the bank decides the personal loan eligibility along with disbursal once they’ve conducted due diligence on the following documents:
- Income statements
- Salary slips and Form 16
- Bank statements
- Latest Income-Tax Returns
- Credit report
- Age proof (birth certificate, passport, Aadhaar, voter id, PAN card etc.)
- Address proof (Aadhaar, passport, electricity bill, telephone bill, ration card, etc.)
- Photo identification proof (Aadhaar, voter id, PAN card, passport, driving license, etc.)
These documents need to be submitted with the application form along with two photographs. Once the loan is sanctioned, before disbursement, the loan agreement copy will be duly signed and a standing instruction request / ECS mandate form and
security deposit cheques are to be provided.
To get a broad sense of your personal loan eligibility, you could also use the loan eligibility calculator. All you have to do
is input the relevant data in the required fields to know your personal loan eligibility. And to know how much the EMI works out to, the personal loan EMI calculator can be the resource.
What are the factors to look at?
- Interest rate
- When you take a personal loan, the interest outgo is one of the vital deciding factors. The interest rate you pay depends on a variety of factors: your age, income stability, whether salaried or self-employed, number of years of work
experience (in the current job/business/profession) and total), your credit score, existing EMIs (if any), and your repayment capacity, loan tenure, among other things.
- The interest outgo determines your EMI and has a bearing on your budget and long-term financial wellbeing. So, make sure you’re availing a loan at a competitive rate of interest. It makes sense to compare interest rates across
- Processing fee & other charges
- Taking a personal loan does not end with interest rates; there are processing fees and other charges levied by lenders. The processing fee is a one-time fee charged as a certain per cent of the loan amount, but subject to a minimum
amount. It varies from lender to lender. A higher processing fee impacts your total cash outflow while availing a loan.
- The other charges include: stamp duty (as per the Stamp Act), default interest rate on the overdue instalment, late payment fee, cheque bounce charges, duplicate interest certificate issuance charge, duplicate statement issuance charge,
duplicate amortization schedule charge, issuance charge for photocopy of loan agreement/documents, prepayment charges (also known as foreclosure charges) and so on, all of which these should be examined carefully. Please note Axis
Bank does not charge for foreclosure of your personal loan. But for the bank to foreclose your loan, the outstanding dues must be cleared in full. And once the outstanding dues are closed in full, submit the foreclosure at the
nearest loan centre, for the lender to process the request.
- Loan Tenure
- The maximum tenure for a personal loan is usually 5 years. A higher tenure can reduce your EMIs, making repayments comfortable, while opting for a lower tenure (of say 2 to 3 years) increases your EMI.
- Repayment flexibility
- Apart from the above crucial aspects, assess if the lender provides you with the flexibility to repay your loan sooner, and at what will this cost you. This flexibility can help you prepay the loan ahead of time, as well as provide
a relief in distressing times. However, it’s best to adopt financial discipline in order to repay the personal loan on time and maintain your financial health in the pink always.
- Customer service
- When you avail a personal loan in times of need, you wouldn’t want it to be an unpleasant experience, do you? Hence, ensure the customer service at the lender has high standards. This service can even help keep track of your
loan, allow you to be in better control of your personal finances
- Remember, while lenders will have varying customer service standards, there are some basics of good service that are universal. The customer service at Axis Bank, among few others, for instance, is transparent and well-co-ordinated
while handling clients and they respect the relationship.
- Terms & conditions
- Make sure you read the terms & condition carefully to make an informed choice. This will avoid issues later and ensure a pleasant, hassle-free experience.
Availing of a personal loan carries the following benefits:
- Your existing finances are not exhausted and the loan can be worked out to suit your budget, facilitating you to save.
- You don’t have to touch your existing investments assigned for other important financial goals such as children’s future (their education and marriage needs) and your own retirement.
- You don’t have to mortgage your existing assets; because as mentioned earlier, a personal loan is unsecured, which means the loan is disbursed without keeping any asset (house, car, investments, etc.) as collateral. The loan is offered
based on your credit behaviour/credit history.
- A personal loan requires minimum paper work and is usually disbursed within 48 hours; sometimes even on the same day
- You can use the personal loan for whatever purpose: your child’s wedding expenses, renovation of your home, travelling, emergencies, and so on.
- You have the opportunity to spend the happy moments with your family while you service the personal loan
Here are some points to remember while availing a personal loan:
- Consider your needs and not the eligibility
- While you could utilize a personal loan for almost anything and your eligibility is high, consider your needs and not the eligibility. Such an approach doesn’t overburden and take a toll on your financial wellbeing. Hence, when
deciding on the amount of personal loan, understand your monthly cash flows (cash inflow and outflow) by prudently drawing up a budget. This is a good time to be realistic with yourself, because nobody else knows your repayment
capacity better than you. The objective is not to go overboard which can potentially jeopardise other long-term financial goals such as your retirement. Ideally, your monthly debt commitment should not exceed 40% of your gross
- Keep your family in the loop
- When you’re planning to avail a personal loan, make sure you discuss it with your family. Sharing your rationale with them will keep them well-informed and their opinions will help you gain a better perspective. And to your surprise,
in times of a short-term cash crunch, they may even come to your rescue. Whatever be the case, keeping your family in the dark may not be in their best interest.
- Be organised in your documentation
- Once you’ve decided on the personal loan amount you require, organise your documentation and other paper work well, so that your personal loan application can be processed faster without going back-and-forth.
- Have a repayment plan in place
- Missing to pay EMIs can cost you more, owing to a higher interest on default, penalty, late fees, and other related charges. Therefore, ascertain the loan repayment schedule and have a repayment plan in place. Study your income flow
and make sure it is consistent (and possibly growing). Account for emergencies, as life isn’t certain. The only way to mitigate risk is to have a contingency plan in place.
- Ensure you hold adequate insurance
- As a bread winner, while you endeavour to do the best for your family vide personal loans, insure yourself optimally. God forbid, in case of an untoward incidence, the insurance money can cushion your family members with financial
security and pay for the outstanding loan.
Now that you’re aware of all the facets to look at before opting for personal loan, go ahead and make an informed decision. But make sure that you’re borrowing for the right reason(s) and read the fine print carefully in the interest
of your long-term financial wellbeing.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN 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. Please consult your financial advisor before making any financial decision.