A Detailed Overview of Various Personal Loan Options Available in India
Applying for a Debt Consolidation Loan in India: A Step-by-Step Guide
Personal loans and lines of credit serve different purposes in finance. While personal loans are lump-sum loans disbursed in one go, lines of credit offer revolving credit with a pre-approved limit. In this article, we focus on the process of obtaining a debt consolidation loan in India.
Step 1: Assess Eligibility and Credit Score
Before you apply for a debt consolidation loan, it's essential to check your credit score, as lenders use this to evaluate your loan eligibility and interest rate. A credit score of 700 or higher is generally preferred.
Step 2: Gather Required Documents
Prepare essential documents, including a filled application form, identity proof (such as PAN, Aadhaar, Passport, Voter ID), address proof (like Aadhaar, Passport, Driving License), proof of income (salary slips for the last three months, Income Tax Returns/Form 16 for the last two years for salaried individuals), bank statements (typically for 12 months), and more.
Step 3: Choose a Lender
Customers often apply through their existing bank, credit union, or financial institution due to existing relationships and better chances of approval. If rejected, explore private lenders or Non-Banking Financial Companies (NBFCs).
Step 4: Submit Application
You can apply online via lender portals or visit a branch. The online application involves filling in personal details, submitting documents either online or physically, and verifying your phone via OTP.
Step 5: Loan Processing and Verification
The bank or lender reviews your application and verifies documents, income, and creditworthiness.
Step 6: Loan Approval and Disbursement
Upon approval, the lender gives you a consolidated personal loan, which you use to pay off existing multiple debts. This converts multiple EMIs into a single one with potentially a lower interest rate and simpler management.
Step 7: Repayment
Start repaying your debt consolidation loan through EMIs as per the agreed schedule, while managing your credit card/debt usage carefully.
Optionally, you can use online debt consolidation calculators to compare your old debts versus consolidated loan EMIs and interest savings before applying.
Self-employed individuals can also avail of personal loans if they meet the eligibility requirements prescribed by the lender. It's crucial to ensure that the EMI for a personal loan is within your income limit to avoid stretching your budget. When applying for a personal loan, compare the annual percentage rate (APR) instead of just the interest rate, as APR expresses the actual cost of the loan, including interest, processing fees, and other costs.
Personal loans can be used for various purposes, including education expenses, travel, home renovation, debt consolidation, and medical expenses. There are various types of personal loans available in India, such as wedding loans, travel loans, education loans, home renovation loans, debt consolidation loans, top-up loans, pension plan loans, and more.
Eligibility criteria for personal loans for self-employed professionals and salaried individuals vary, with factors such as age, employment period, income, and credit score considered. Government employees can access any type of personal loan from banks and NBFCs without much challenge due to their steady income flow.
To find the right type of personal loan that suits your requirements, conduct proper research about the lender and compare the loan offers, interest rates, and terms and conditions. Personal loans are versatile financial tools that can be used to meet various financial needs, such as medical expenses, travel adventures, debt consolidation, home renovations, and more.
Utilizing an online debt consolidation calculator before applying can help you compare your potential savings on EMIs and interest with your existing debt.
Maintaining a high credit score is vital when applying for a debt consolidation loan, as it plays a significant role in determining loan eligibility and interest rates.
