Eligibility criteria

Although it varies from bank to bank, the general criteria include your age, occupation, income, capacity to repay the loan and place of residence.
To avail of a personal loan, you must have a regular income source, whether you are a salaried individual, self-employed business person or a professional. An individual's eligibility is also affected by the company he is employed with, his credit history, etc.

Maximum loan duration

It can be 1 to 5 years or 12 to 60 months. Shorter or longer tenures may be allowed on a case by case basis

Need for personal Loan

• Personal financial need
• meeting unexpected medical expenses or any emergencies.
• Personal loans are also useful when it comes to investing in business.

Rates

Being unsecured loans, personal loans have a higher interest rate than those on secured 'home and car' loans. At present, many leading banks and NBFCs offer such loans at interest rates of as low as 11.49%. However, the rate applicable to a borrower is contingent on key factors, including credit score, income level, loan amount and tenure, previous relationship (savings account, loans or credit cards) with the lender, etc.

Fixed or floating interest rates

For a fixed rate personal loan, the EMIs remain fixed. Floating rate means the EMIs keep decreasing as it follows the reducing balance method of calculating interest pay out on a personal loan. As per the new Marginal Cost of Funds based Lending Rate (MCLR) rules, floating rates may be changed either on a half-yearly or annual basis.

Difference between part payment, prepayment and pre closure

• Part payment: This amount is less than the full loan principal amount and is made before the loan amount becomes due.
• Prepayment: When you pay off your loan in part before it becomes due as per the EMI schedule. The prepayment amount may or may not be equal to the total due amount. Prepayment charges are usually in 2-5% range of the outstanding loan amount.
  Additionally, many banks do not allow prepayment/pre closure of loan before a specified number of EMIs have been completed.
• Pre closure: It refers to completely paying off a personal loan before the loan tenure has ended. Just like prepayment charge, pre closure charges range from 2- 5% of the loan amount.

When comparing your options, start by figuring out what type of loan you’re looking for. There are a few different types of personal loans out there, and the one you apply for will depend on your needs.
Once you’ve decided what type of personal loan you want to apply for, There are several ways as how to compare the personal loan offers from different lenders:

• Amount of Loan: What is the minimum and maximum amount the lender lets you apply for and is it enough?
• Terms of Loan: What are the minimum and maximum loan terms? Usually terms of between two and seven years are available, but it differs between providers.
• Fees Charged Check for fees such as charges you pay to take out the loan and ongoing costs such as monthly or annual fees.
• Rate of Interest Is the rate fixed or variable? Is it competitive?
• Repayment amount. Once you know your loan amount and terms, you can use a loan repayment calculator to see if the repayments will be affordable on your budget.
• Repayment terms Can you choose your repayment schedule? Can you make extra repayments without a fee? Can you repay the loan early without penalty?

Basic eligibility criteria you need to meet varies by lender; these are the most common points lenders consider on your application:

• Credit score: . Although online lenders weigh credit scores differently than traditional lenders, you’ll still have to meet a minimum credit score to qualify for many personal loans.
• Employment: Most lenders will require you to be employed and working a stable job. Some lenders may consider alternative forms of income such as retirement or investments.
• Income: You may need to earn over a certain amount to be eligible to apply for a loan, but some lenders would rather see a low debt-to-income (DTI) ratio, usually under 43%.
• Residency: Most lenders will require you to be a US citizen, permanent resident or on a long-term visa, though there are lenders that accept non-residents.
• Age: You’ll need to be at least 18 in most states, although some states require you to be 19 or 21 to apply for a loan.

Just because you meet these requirements doesn’t mean you’ll be approved for a loan. You need to be able to show you can afford what you borrow without straining your budget. Lenders will look at your income, outstanding debts and employment in order to determine if you’re an eligible applicant.

Usually, you’ll have to submit a variety of documents and information to your lender, either during the initial application or after you’ve been preapproved.
To process your application, your lender will need you to supply a few basic pieces of information first. These typically include:

• A government-issued ID: You’ll need to provide your driver’s license, passport or another form of government-issued identification when applying for a loan.
• Proof of income: Depending on the lender, you may need to provide three to six months of pay stubs or bank account statements. If you’re self-employed, lenders may request tax returns from the last two years.
• Other financial documents: If you have other debts, such as loans or credit cards, you may need to provide statements from those accounts.
• Social Security number or tax identification number: Lenders will request your SSN or TIN so it can confirm your identity.

There are two steps when you receive approval: preapproval and full approval.

• Pre-Approval:

Pre-approval, also called conditional approval, usually takes less time because the lender is simply assessing your strengths as a borrower. It’s given pending more information from you, such as additional pay stubs or documents relating to your assets or debts. The lender will still need to fully underwrite your application and check your credit before issuing full approval.

• Full Approval:

Full approval is given when you’ve supplied sufficient information for the lender to make a decision on your application. Your lender will provide you a loan contract or loan agreement that outlines how much you’ll be borrowing, how much you need to pay back and other important details regarding your loan.

Lenders are able to fund your loan in a number of ways. For example, when you take out a car loan, the lender may pay the car seller directly. This is often the same case with loans for debt consolidation they send the money directly to your creditor.

If you’re borrowing an unsecured personal loan, your lender sends the funds to the bank account you provided. It generally takes a few business days for the loan to be transferred, and you may be able to sign up for automatic payments to reduce your interest rate — or at least minimize the risk of forgetting to pay on the due date.

Most repayment terms are monthly. Some lenders only work online and only accept direct payments from your bank account, while others will allow you to pay back your loan via check or money transfer.
If you plan on making extra payments toward your loan or paying it off early, make sure your lender doesn’t have restrictions on how much you can pay per year and that it doesn’t have any prepayment penalties.

If you’re simply making your payments as set out in your loan contract, then your loan should be closed following your final payment. However, if you’re planning to repay your loan early, it’s a good idea to call the lender and get a final payout figure. This ensures your loan will be closed when you make your final payment and you won’t be charged any unexpected interest.