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What are personal loans?

Banks and NBFCs have set strict eligibility criteria concerning income, credit and employment history and past repayment capacity for availing personal loans.

ET CONTRIBUTORS|
Apr 15, 2019, 06.30 AM IST
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A loan processing fee has to be paid besides interest and lenders can charge a prepayment penalty.
1. A personal loan is given by a bank or an NBFC to an individual to meet any personal needs like funding a marriage, home renovation, vacation etc.

2. Since personal loans are not secured against any asset, the lender cannot recover the funds by selling anything. Hence, the rate of interest is higher than other secured loans.

3. Banks and NBFCs have set strict eligibility criteria concerning income, credit and employment history and past repayment capacity for availing personal loans.

4. A loan processing fee has to be paid besides interest and lenders can charge a prepayment penalty.

5. Sometimes, based on the relationship with the lender and financial history, the customer is given the facility of a pre-approved loan limit.

(This content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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