How to Apply for a Personal Loan: Step-by-Step Guide | Fi Money

Remember when your car broke on the way to work, or maybe you had a medical emergency and bore an expected financial burden? Many people face situations like these, and getting a loan from a bank can be a lifesaver. Today, most lenders facilitate easy and hassle-free loan disbursals.
If you've been wondering how to start your loan application process, look no further than this step-by-step guide.

What Is a Personal Loan?

A personal loan is the total money you can borrow from different financial bodies like banks, credit unions and online lenders. Once approved, you repay the loan in fixed monthly instalments with interest. 

Most lenders offer personal loans as unsecured loans. This means you don't need to pledge any collateral, like property, against the loan amount.

Personal loan interest rates vary from lender to lender and depend on factors such as your credit score, financial history, and loan repayment ability. 

Before You Apply: Preparation is Key 

Before diving into an application for a loan, do some homework:

Assess Your Need & Affordability

The first crucial step is determining exactly how much money you actually need. It's tempting to borrow extra "just in case," but remember – every rupee borrowed must be repaid with interest.

Ask yourself: 

1. What specific expense am I funding?
2. Is there any way to reduce this expense? 
3. Can I comfortably manage the monthly EMIs alongside my existing expenses? 

Pro tip: Use Fi Money's EMI calculator to estimate your monthly payments based on different loan amounts, interest rates, and tenures. This helps you understand your repayment burden before committing.

Check Your Eligibility & Credit Score

Lenders evaluate your loan application based on several key factors: 

1. Age: Typically between 21-65 years
2. Income stability: Regular employment with consistent income
3. Credit history: Your track record of repaying previous loans and credit cards
4. Debt-to-Income Ratio (DTI): The percentage of your monthly income going toward debt payments

Your credit score is significant in the credit process. Most lenders prefer scores above 750 for favourable terms. Fi Money allows you to check your credit score for free and understand where you stand before applying.

Here's how to calculate your DTI: 

1. Add up all your monthly debt payments
2. Divide by your gross monthly income
3. Multiply by 100 to get the percentage

For example:
Monthly debt payments: ₹30,000
Gross monthly income: ₹100,000
DTI = (30,000 ÷ 100,000) × 100 = 30%

Most lenders prefer a DTI below 35%. If yours is higher, consider paying down existing debts or increasing your income before applying. 

Choose the Right Lender

The lender you choose significantly impacts your loan experience. Let's compare your options: 

Traditional Banks:

1. More stringent eligibility criteria
2. Lower interest rates for existing customers
3. Longer processing times
4. Established reputation
5. Usually requires branch visits

NBFCs (Non-Banking Financial Companies):

1. More flexible eligibility requirements
2. Slightly higher interest rates
3. Faster processing than traditional banks
4. Fewer documentation requirements

Digital Lenders/Fintech Apps: 

1. Quickest application and approval process
2. Completely paperless experience
3. Competitive interest rates
4. 24/7 application accessibility
5. Advanced technology for faster decisions

Fi Money combines the security of traditional banking with the convenience of digital lending. It offers pre-approved loans at competitive rates with minimal paperwork. The entire process happens seamlessly through the app, saving you valuable time and effort.

The Personal Loan Application Process: Step-by-Step 

Now that you've done your homework let's walk through how to apply for a personal loan. The personal loan procedure typically follows these loan process steps, whether you're applying online or offline.

Step 1: Gather Required Documents

The loan documentation process requires specific paperwork to verify your identity, address, and financial status. Having these ready beforehand speeds up your personal loan application significantly: 

Identity Proof: 

1. Aadhaar Card
2. PAN Card
3. Passport
4. Voter ID Card 

Address Proof: 

1. Aadhaar Card
2. Passport
3. Utility bills (electricity, water, gas)
4. Rental agreement 

Income Proof: 

1. Last 3 months' salary slips
2. Form 16
3. The last 6 months' bank statements
4. Income tax returns (ITR) for the previous 2 years 

Additional Documents: 

1. Passport-sized photographs
2. Employee ID card
3. Job appointment letter (for recent employment) 

Remember, specific requirements may vary slightly between lenders, so always check their official websites for exact documentation needs. 

Step 2: Fill Out the Loan Application Form

The next step in applying for a loan is to complete the form with your personal, professional, and financial details. 

Online Process: 

1. Visit the lender's website or download their app
2. Navigate to the personal loan section
3. Enter basic details to check eligibility
4. Complete the entire application form with all required information
5. Upload scanned copies or clear photos of your documents
6. Verify details via OTP or digital signature

Fi Money's online loan application process is even more straightforward. The app pre-fills information based on your existing profile, making the application process faster and error-free. 

Offline Process: 

If you prefer the traditional bank loan application route: 

1. Visit your nearest branch of the chosen bank
2. Request a personal loan application form
3. Fill it with accurate information
4. Attach physical copies of all required documents
5. Submit the form to the bank representative
6. Some banks may request a loan application letter stating your purpose for borrowing, the amount needed, and how you plan to repay it. This is more common with formal offline bank loan processes. 

Important tip: Whether online or offline, ensure all information is accurate and matches your supporting documents to avoid delays in the bank loan process. 

Step 3: Submit Your Application & Documents

Once your application form is complete and documents are ready, it's time to submit everything. 

For online submissions: 

1. Double-check all entered information
2. Ensure document uploads are clear and legible
3. Complete any verification steps (OTP, video KYC)
4. Submit the application with a single click
5. Note down any reference number provided 

For offline submissions: 

1. Submit your completed form along with document copies at the branch
2. Request an acknowledgement receipt
3. Note down the application reference number
4. Get contact details of the representative handling your application 

What Happens Next? Understanding the Loan Approval Process 

After submission, your application enters the loan approval process. Here's what happens behind the scenes in the credit process: 

Verification Stage 

The lender begins by verifying all the information you've provided: 

1. KYC verification to confirm your identity and address
2. Employment verification (may include calls to your workplace)
3. Income verification through submitted documents
4. Some lenders may conduct field visits to verify residence or workplace 

Credit Underwriting 

This is the core evaluation stage where the lender assesses your creditworthiness: 

1. Analysis of your credit report and score
2. Calculation of your debt-to-income ratio
3. Evaluation of employment stability and income consistency
4. Assessment of your repayment capacity 

The lender uses this information to determine whether to approve your loan, how much to lend, and what interest rate to offer. 

Loan Sanction or Rejection 

Based on the verification and credit assessment, the lender makes a decision: 

Approval: If approved, you'll receive a loan sanction letter that outlines: 

1. Approved loan amount
2. Interest rate offered
3. Loan tenure
4. Processing fees and other charges
5. EMI amount and repayment schedule 

Rejection: If your application is rejected, common reasons include: 

1. Low credit score
2. Insufficient income
3. The high existing debt burden
4. Employment instability
5. Discrepancies in the provided information 

In case of rejection, most lenders allow you to reapply after addressing the issues that led to the rejection. 

Review & Accept the Loan Offer 

Once your loan is approved, carefully review the offer before accepting: 

1. Verify the loan amount matches what you requested
2. Check the interest rate and compare it to what was initially discussed
3. Understand all fees (processing fee, prepayment penalties)
4. Review the repayment schedule and EMI amount
5. Read the fine print regarding late payment penalties and default consequences 

You sign the loan agreement only after you're completely satisfied with the terms. This is a legally binding document, so take your time to understand everything 

Post-Approval: Disbursement and Repayment 

Loan Disbursement 

After acceptance, the loan amount is typically disbursed within 24-72 hours: 

1. For debt consolidation or balance transfers, the funds may go directly to your creditors
2. For other purposes, the amount is credited to your bank account
3. You'll receive a confirmation message once the disbursement is complete 

Understanding Your Repayment Schedule 

Your loan comes with a fixed repayment schedule: 

1. EMIs start a month after disbursement
2. Each EMI includes principal repayment and interest
3. Early in the tenure, a larger portion goes toward interest
4. Later, more of each payment reduces the principal
5. Payment can be made through auto-debit, online banking, or other methods 

Fi Money offers an in-built feature to set up automatic payments, ensuring you never miss an EMI due date and protecting your credit score. 

Tips for a Smooth & Successful Loan Application 

The best way to get a personal loan with favourable terms includes the following: 

Maintain a Healthy Credit Score 

1. Pay all existing loans and credit card bills on time
2. Keep credit utilisation below 30%
3. Don't apply for multiple loans simultaneously 

Compare Offers from Different Lenders 

1. Don't settle for the first offer
2. Look beyond the interest rate (consider processing fees, prepayment options)
3. Check for hidden charges 

Borrow Only What You Need and Can Repay 

1. Calculate your repayment capacity realistically. With the Fi Money EMI Calculator, you can now estimate your monthly repayment amount.
2. Factor in potential future financial changes
3. Consider building an emergency fund instead for smaller needs 

Provide Accurate Information 

1. Any discrepancies can lead to rejection
2. Misrepresentation could even be considered fraud
3. Be honest about existing debts and liabilities 

Read the Fine Print Carefully 

1. Understand prepayment penalties
2. Know the consequences of late payments
3. Be aware of all terms and conditions

Conclusion 

In summary, applying for a personal loan can be valuable when facing unexpected financial burdens or pursuing essential goals. Individuals can easily navigate the loan application journey by understanding the process and following a step-by-step guide. 
To make an informed decision, factors such as eligibility, interest rates, charges, and documentation requirements should be carefully considered. 
Once the loan is approved and disbursed, adhering to the repayment schedule and maintaining a good credit score is crucial. With responsible borrowing and timely repayment, personal loans can be a helpful tool in managing one's financial needs.
If you're looking for a personal loan, apps like Fi Money provide instant pre-approved loans at low interest rates. They also have an in-built feature to set up automatic in-app payments to prevent late loan payments. Use them to your advantage and get quick financial assistance.

Frequently Asked Questions

1. What is the first step in the loan application process?

The first step involves applying for a personal loan. This step aims to provide the borrower’s information, like the loan amount, purpose, and personal and financial information.

The lender reviews all submitted details to understand their creditworthiness and loan-repaying ability. Most lenders have online or offline facilities to complete the application process.

2. What are the stages of the loan process?

The loan cycle of most lenders has the following stages for the personal loan process.

1. Application: Submitting a loan application to the lender
2. Evaluation: The lender assesses the borrower's eligibility
3. Approval and Disbursement: If the borrower meets the lender's criteria, the loan is approved, and the funds are disbursed to the borrower's designated account.
4. Repayment: The borrower is required to repay the loan according to the agreed-upon terms.
5. Closure: Once the borrower successfully completes the repayment, the loan is considered closed.

During the first two stages, the lender checks the credibility, financial profile, and repayment capacity. After final approval, the lender sanctions the loan amount and transfers it to their bank account.

Once you receive the loan amount, you are liable to repay the loan in full, including interest. The loan cycle ends after repayment of the loan amount in pre-decided tenure.

3. What is the minimum credit score for a personal loan?

While lenders have varying criteria, a general guideline is that a minimum CIBIL score of 700 or above is typically required for personal loan approval, with scores above 750 considered good. 

4. Can I get a personal loan without a credit check?

Yes, it's possible to get a personal loan without a credit check, but such loans often come with higher interest rates and fees, and lenders will assess your eligibility based on factors other than your credit history, such as income and employment. 

5. What happens if I can't repay my personal loan?

Missed payments can lead to penalties, higher interest, a drop in credit score, and, in extreme cases, legal action.

6. What are the different types of personal loans available?

Common types include secured, unsecured, payday, debt consolidation, wedding, travel, and medical loans. 

7. How long does it take to approve my loan?

It usually depends on your lender, but generally it takes somewhere between two to three working days to get the approval. It can take longer in cases where you fail to submit the right documents. 

8. What is the easiest way to apply for a personal loan? 

The easiest way to apply for a personal loan is through a digital lending platform or fintech app. The online loan process is significantly more convenient than traditional methods because: 

1. You can apply 24/7 from anywhere using your smartphone or computer
2. Documentation is typically digital (you can upload photos or scans)
3. Fi Money pre-fills your information based on your profile
4. The entire application can be completed in minutes rather than days
5. There's no need to visit physical branches or stand in queues
6. Verification happens digitally through OTP or video KYC 

9. What documents are essential for a personal loan application? 

The loan documentation process typically requires these essential documents: 

Identity Proof 

1. Aadhaar Card
2. PAN Card (mandatory)
3. Passport
4. Voter ID Card 

Address Proof: 

1. Aadhaar Card
2. Passport
3. Utility bills (electricity, water, gas)
4. Rental agreement 

Income Proof: 

1. Last 3 months' salary slips
2. Form 16
3. The last 6 months' bank statements
4. Income tax returns (ITR) for the previous 2 years 

Additional Documents: 

1. Passport-sized photographs
2. Employee ID card or job appointment letter (for recent employment) 

Remember that specific requirements may vary slightly between lenders, so always check their official websites for exact documentation needs. 

10. Can I get a personal loan with a low credit score? 

Yes, getting a personal loan with a low credit score is possible, though it will be more challenging. Here's what to expect: 

1. Higher interest rates to compensate for the increased risk
2. Lower loan amounts than what you might qualify for with a good score
3. Stricter requirements for income and employment stability
4. Some specialised lenders focus on serving customers with less-than-perfect credit 

You could improve your credit score by making timely payments on existing debts and correcting any errors in your credit report before applying. 

11. What are the main steps involved in getting a loan from a bank? 

The bank loan process typically involves these main steps: 

Preparation: 

1. Check your credit score and eligibility
2. Calculate how much you need and can afford to repay
3. Research different banks and their loan offerings

Document Collection: 

1. Gather all required identity, address, and income proofs
2. Organise financial statements and tax returns
3. Prepare employment verification documents

Application Submission: 

1. Visit the bank branch or apply through their website
2. Fill out the loan application form with accurate details
3. Submit all required documents
4. Pay any application fees if applicable 

Verification Process: 

1. The bank verifies your identity, address, and employment
2. They may conduct physical verification or make verification calls
3. Your credit history and score are checked 

Credit Assessment: 

1. The bank evaluates your repayment capacity
2. They analyse your income, expenses, and existing debts
3. Your credit score and history are factored into the decision 

Loan Approval and Offer:

1. If approved, you will receive a sanction letter with loan details
2. Review the terms, interest rate, and repayment schedule
3. Accept the offer by signing the loan agreement 

Disbursement: 

1. Complete any final formalities like setting up auto-debit 
2. The loan amount is transferred to your account
3. Begin repayments according to the agreed schedule 

This process typically takes a few days to a couple of weeks with traditional banks, which is considerably longer than with digital lenders.

12. What is the difference between loan application and loan approval? 

Loan Application: 

1. This is the initial step where you submit your request for a loan
2. You provide personal, professional, and financial information
3. You submit supporting documents to verify your details
4. It's essentially your formal request asking the lender to consider you for a loan
5. The application process is entirely in your control
6. Not all applications proceed to the approval stage 

Loan Approval: 

1. This is the lender's decision to grant you the loan after evaluating your application
2. It comes after thorough verification and credit assessment
3. The lender determines if you qualify and how much they're willing to lend
4. Approval includes specific terms like interest rate, tenure, and EMI amount
5. The lender controls this stage based on their risk assessment
6. Approval is communicated through a formal sanction letter
7. You still need to accept the terms before the loan is disbursed