Small Personal Loans: Everything you need to know about interest rates and eligibility

Are you in urgent need of funds but the quantum is not large enough to go for a big-ticket loan? A small personal loan offered by banks and NBFCs (Non-banking finance companies) to cover small but unforeseen expenses can be quite helpful in such circumstances. You can borrow as low as ₹50000 as a small personal loan. Here is a quick snapshot on small personal loans, interest charges, eligibility requirements and repayment terms.

What is a small personal loan?

A small personal loan, termed as a ‘mini loan’ by banks, is an unsecured loan that is typically availed by those who are in urgent need of a small amount to cover unforeseen expenses. You can borrow a minimum of ₹50,000 from lenders. But some banks and NBFCs offer it only for salaried individuals.

Since it is apersonal loan, you can use it for a variety of purposes. You can use the loan to pay off medical bills, school and college fees, do home repairs and utilise it for other emergency needs. It can be tailor-made for your urgent, short-term requirements.

A small personal loan enables you to meet the shortfall when you are facing a cash crunch. They are usually disbursed on the day the loan application is approved. You can get the funds in your account within a single working day.

What are the interest rates and repayment tenure?

Small personal loans come with flexible repayment terms. The interest rates range from 10.85% to 16.65% per annum on a reducing balance basis. The tenure of the loan can be as low as two months and extends to a maximum of 72 months.

Borrowers with a healthy credit score can get better terms, including lower interest rates. If your credit score is above 730 and if you fulfil the eligibility parameters, there is no need for a guarantor for availing the loan. The processing fee is usually 2% of the loan amount (plus GST) but this can go up to 5%. But there are no foreclosure charges for small personal loans.

How about the eligibility criteria for these loans?

Eligibility criteria varies with each lender. But lenders typically provide these loans for salaried persons with a minimum income of ₹30,000 per month. Self-employed professionals should have a turnover of ₹15 lakh per year while self-employed non-professionals must have an annual turnover of at least ₹40 lakh.

Salaried persons should have an experience of at least two years while for business owners it is at least five years. Professionals such as doctors should have an experience of at least three years to avail the loan.

The minimum income eligibility criteria for salaried individuals will vary based on the customer's profile, type of employer and any her/his existing relationship with the bank.

What are the documents that are required to apply for the loan?

The documents required for small personal loans are quite minimal. You can submit the documents online to complete the application and verification. Here is the list of documents that are needed for obtaining the loan.

For salaried individuals:

• Identity proof: Passport, driving licence, PAN Card or Voter's ID Card
• Address proof: Latest Utility bill, licence agreement or Passport
• Income proof: Salary slip and bank statement of three months preceding the loan application.

For self-employed individuals:

• KYC documents: Identity proof, residence proof and date of birth proof
• Address proof: Latest utility bill, licence agreement or Passport
• Income proof: Bank statement of six months preceding the loan application
• Audited financial statements of the preceding two years
• Proof of office or residence ownership
• Proof of business continuity.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.