In today’s fast-paced world, getting a personal loan can be as quick as two minutes, thanks to the rise of instant loan apps. However, these instant loans often come with high interest rates, sometimes as high as 30-35%, making them costly in the long run. On the other hand, traditional banks like the State Bank of India (SBI) offer personal loans at significantly lower interest rates, often half of what many instant loan apps charge. In this blog, we’ll cover everything you need to know to apply for a personal loan, especially from banks like SBI, where the process is more reliable and affordable if you know the right steps.
What is a Personal Loan, and Why is it Expensive?
A personal loan is an unsecured loan, meaning the bank does not require you to put up any assets like a car or property as collateral. Because there is no security, the bank takes on higher risk and charges higher interest rates. This is why personal loans are more expensive than secured loans, like car loans or home loans, where the bank can seize the asset if you default on payments.
You can use a personal loan for a wide variety of needs, from medical expenses and education fees to personal purchases. But since it’s unsecured, be prepared for a higher rate compared to secured loans.
Important Terms to Know Before Applying for a Personal Loan
Understanding some basic loan terms can help you make better decisions and negotiate with banks:
- Rate of Interest: This is the percentage of interest the bank charges on the loan. Interest rates can be fixed (staying constant throughout the loan term) or floating (varying based on an external benchmark like the RBI’s repo rate).
- Loan Eligibility: This determines the maximum loan amount you can get, which is often based on your monthly income. For example, SBI offers loans up to 24 times your monthly income. If you earn ₹50,000 per month, you may be eligible for a loan of up to ₹12 lakh.
- Other Charges: Apart from interest, banks charge additional fees like processing fees, prepayment charges, and documentation fees. These are negotiable, so it’s worth discussing these charges with the bank.
- Loan Repayment: This is how you’ll pay back the loan. Typically, the bank sets up an automatic Electronic Clearing Service (ECS) instruction, so a fixed EMI amount is debited from your account every month.
Documents Required for a Personal Loan
Here’s a list of basic documents banks like SBI usually require:
- ITR or Form 16
- Six months’ bank account statement
- Aadhaar and PAN card
- Three months’ salary slips
- Credit score report (banks check this before offering any loan)
Keeping these documents ready can speed up your loan process and increase your chances of approval.
Types of Personal Loans Offered by SBI
SBI has various types of personal loan products, each tailored to different needs and customer categories. Here’s a brief overview of SBI’s personal loans:
- Express Credit: This is for people with salary accounts in SBI. If your monthly salary is at least ₹15,000, you can apply for a loan amount from ₹25,000 to ₹20 lakh. The interest rate varies from 11.35% to 14.50%, and there’s a processing fee of 1%.
- Real Time Express Credit: Targeted at government and defense employees, this loan offers lower processing fees and allows EMI payments of up to 60% of your monthly income, giving you a slightly higher eligibility amount.
- Express Flexi: For premium customers, this product provides an overdraft facility instead of a fixed loan amount, offering more flexibility. The minimum loan amount is ₹1 lakh.
- Express Elite: The highest-level offering from SBI, Express Elite is aimed at premium customers with monthly salaries of at least ₹1 lakh. This loan offers a maximum amount of ₹35 lakh, with slightly lower interest rates compared to other Express products.
- SBI Quick Personal Loan: If you don’t have a salary account with SBI, you can still apply for a Quick Personal Loan with a minimum monthly salary of ₹15,000. This loan offers a similar eligibility criterion (up to 24 times your monthly salary) but at a slightly higher interest rate.
Apart from these, SBI also offers specialized personal loans for specific groups, such as the SBI Pension Loan for pensioners and loans against securities for those wanting a secured loan.
Tips for Getting the Best Deal on Your Personal Loan
- Compare Interest Rates: Before settling on a lender, compare rates from at least two to three different banks. This way, you can choose the one with the best terms.
- Consider a Home Loan Top-Up: If you already have a home loan, consider taking a top-up on it instead of a separate personal loan. The interest rate for a top-up loan is often lower, saving you money in the long run.
- Opt for Floating Interest Rates: With the possibility of the RBI repo rate decreasing in the near future, choosing a floating interest rate might reduce your EMI burden over time.
Final Words
Applying for a personal loan in India can be a smooth process if you’re well-prepared. Ensure you understand the terms, gather the necessary documents, and compare different lenders to get the best deal. Personal loans are a valuable resource, but since they come at a higher cost, they must be used wisely. We hope this guide has clarified the process, and you’re now equipped to make a well-informed decision.