In the world of various loan options available today, taking out a personal loan is one of the easiest ways one can meet any financial need. Money could be required for a multitude of reasons like medical emergencies, house renovations, wedding expenses, vacation costs etc. A personal loan assures that these requirements for finance can be fulfilled quickly. Taking out a personal loan is not only easy but the interest on a personal loan is low and cost effective.
Loans are usually divided into 2 categories:
- Secured against an asset or
- Unsecured where there is no collateral secured against the loan.
In case of a secured loan if the repayment instalment is not made on time, the asset could be repossessed by the lender. Taking out an unsecured personal loan means that there is no risk to an important asset like a family home or a vehicle. HeroFinCorp is one of the leading providers of personal loans in the country. The process of application is transparent and easy and the loan disbursal is made quickly.
There are various components which can affect the interest on personal loans offered by lenders. We shall explore all of them in detail.
- Loan amount – Personal loans can be offered for amounts ranging from Rs 50,000/- to Rs 5,00,000/-. An increase in the loan amount required will increase the interest rate since the lender’s risk in offering the loan will be higher.
- Duration of the Loan – The personal loan can be offered for a tenure of up to 60 months. Interest rates are higher if the money is borrowed for a longer period of time. This is again because the risk to the lender is higher in case of a longer repayment schedule.
- Credit History – All lenders check the credit history of the borrower. This helps the lender to decide if the borrower is a worthy credit risk. Any information about default in making payments, utilizing too much credit, etc. can increase the interest rate offered.
- Income – The borrower should have a minimum income of Rs 15,000/. This is used to check their capacity to repay the loan amount. In case of self-employed individuals and professionals, the last income tax return filed should be more than Rs 2,00,000/- in value. In case of all borrowers if the income earned by them is high they will be offered a lower interest rate compared to someone who earns a lower income.
- Employment history – The borrower should be in their current employment for at least 6 months. The lender can use this to gauge the borrower’s stability. Being employed with a reputed company can increase the chances of a lower interest rate. In case of self-employed individuals, they should have been in the current business for a period of at least 2 years.
- Age – The minimum age to apply for a personal loan is 21 years. Age can also affect the interest rate. Individuals who are older and nearing retirement age could be offered a higher interest rate.
- Method of interest rate calculation – There are 2 types of interest rates that can be charged on a personal loan. a. Fixed rate of interest – This is when the interest rate and the EMI remains constant throughout the duration of the loan. There may be prepayment charges in case the loan is repaid b. Floating rate of interest – The rate does not remain same during the term of the loan. This is because the rate is linked to an external benchmark by the lender. There are usually no prepayment costs.
All these points should be taken into account when deciding to avail of a personal loan. There are also processing and other charges levied which could increase the effective cost to the borrower. Research and comparison between the various lenders offering personal loans and studying all their features is a must. Sometimes lenders even offer attractive interest rates on personal loans during many festive seasons. HeroFinCorp has a variety of application channels and applications can be made in real time ( Personal Loan App), online and offline at their branches.