Are you planning to travel across the country after the lockdown gets lifted? Or are you preparing for your big fat destination wedding when things settle down? Whatever your goal is, you need enough cash in your hand. And if you have not saved enough already (for your goals), you might need a loan.
A personal loan can help you out quickly as it does not call for any collateral. However, you need to have the right personal loan documents handy. So, first, take a look at the things you should know about this type of loan.
What is a personal loan?
A personal loan is a financial product that can help you during tough times, without needing you to pledge any asset. You can use the funds for a variety of purposes. A personal loan can be used for funding that dream vacation, weddings, medical emergencies, house renovations, car purchase, or even the education of your kids. Its application is not limited to a specific purpose.
There are a few things to bear in mind while applying for a personal loan though. You must be aware of the factors that can influence personal loan interest rates, eligibility requirements, and personal loan document requirements. So, read on to know all about it.
Personal Loan Documents:
1: KYC Documents:
Financial Institutions are required to maintain the record of their customers. No financial institution wants to deal with someone engaged in illegal activities. And KYC helps lenders to prevent or limit illegal activities such as money laundering.
So, here is what you need to submit:
- Identity Proof: Passport/ PAN Card/ Voter ID Card/ Aadhaar Card/ Driver’s License
- Residence Proof: Ration Card/ Utility Bills/ Aadhaar Card/ Passport/ Driver’s License
- Residence Ownership Proof: Property Documents/ Electricity Bills/ Maintenance Bill
- Office Address Proof or Office Ownership Proof (for self-employed): Maintenance Bill/ Utility Bills/ Property Documents
2: Income Proof:
Income plays a crucial role in determining one’s eligibility for a personal loan. A person with a stable income is considered a low-risk borrower who can repay their debt on time.
Income Proof Documents:
- The last three months’ salary slips along with Form 16.
- The last six months’ account statement that reflects the credited salary.
Proof of Job Continuity:
- Certificate of employment from the current organization.
- Experience Certificate (appointment or relieving letter from the previous organization along with the job certificate)
- Appointment letter of the current organisation.
- Account statement for the past one year.
- Income tax returns (ITR) for the past two years.
- Income computation, audit report, P&L account, balance sheet, and a few more that the lender deems appropriate.
Business Existence Proof:
- Copy of Tax registration
- Company registration details
- Shop establishment proof
- Proof of investment such as immovable assets, fixed deposits, mutual funds, share certificates, etc.
- Passport size photographs.
Eligibility Criteria for a Personal Loan:
- You must be between 21 and 60 years of age. This factor may differ from lender to lender though.
- Your monthly income should be at least Rs. 20,000.
- Minimum one year of job experience and 6 months of experience with the current organisation is needed.
- If the applicant is a business owner, a minimum of three years in the current business is essential.
- Financial Institutions may add on other conditions.
The above stated eligibility requirements and personal loan documents may vary based on the financial institution.
Factors Affecting Personal Loan eligibility
Here are the factors that you need to keep in mind:
1: Credit History: You must have a strong credit history in order to get your personal loan processed. Make sure you have not defaulted on your past EMIs. A credit history helps financial institutions to analyse the repayment capability of a borrower.
2: Income: If you have a stable income, you have a better chance of getting your personal loan approved. Along with income stability, lenders also look for job stability. If you are someone who continuously switches jobs, financial institutions may reject your loan application form.
3: Age: Financial institutions usually avoid lending to a customer who has just started a job or is about to retire. Age reflects the person’s earning potential.
4: Debt to Income Ratio: If you have a lot of debt, lenders can turn down your loan application. If you are opting for a personal loan or any other loan, make sure that you have sufficient income left after paying off your existing debts. Financial institutions favour debtors with a debt-to-income ratio of 50% or below.
To cut a long story short, personal loans can help you out when you need money urgently and do not want to explain to the lender why you need it. These loans are easy to repay in monthly installments over a period of two to five years usually. However, if you wish to apply for this loan, make sure you have all the relevant personal loan documents in place to avoid any inconvenience.