Personal loans are considered more convenient and easily accessible for various following reasons, namely:

Multi-Purpose:- You can use a personal loan to meet multiple financial requirements such as vacation plans, wedding expenses, medical emergencies, business expansion, etc.

Flexible Tenure:- You can repay your loan through monthly EMIs, and the repayment period is flexible, starting from 6 months to 60 months. Hence, you can choose the tenure period that suits your needs.

Instant Disbursal:- The verification is done online, so the process is quick. As a result, your loan amount will be disbursed within 24 to 48 hours.

Zero Collateral:- Since it is an unsecured loan, you need not submit any asset as security to get your loan approved.

Minimum Documentation:- With just minimum documents for identity proof and income proof, such as Aadhar Card, PAN card, and bank statements, you can get your loan approved instantly.

Paperless Process:- You need not physically visit the banks since the process is online. This digital process makes the loan approval process quick and convenient to access.

Eligibility Criteria

Documents Required

For Salaried Employee:

For Self-Employed:

Factors to Consider Before Applying For a Personal Loan

Check Your Eligibility Criteria:- The first step before you plan to apply for a personal loan is to check if you qualify for all the eligibility criteria mentioned by your banks or lending institutions.

Valid Documents:- Submit accurate documents, such as Aadhar Card, PAN Card, bank statements, etc., for KYC verification. If there is any mismatch in the information provided with your documents, your application might be rejected.

Credit Score:- Whenever you apply for a personal loan, lenders experian credit score to evaluate your creditworthiness before lending you the money. Therefore, you must have an above-average score above 750 to qualify for the loan’s eligibility criteria. Moreover, you can get your loan at a comparatively low-interest rate with a high score. Hence, if you want to check your credit report, you can use Buddy Score to get a full credit report indicating your financial health.

Monthly Income:- Since it’s an unsecured loan, the lenders bear a high risk in lending you the loan. Hence, they expect you to have a stable job to ensure you can repay the loan on time. And a minimum payment of INR 20,000 per month is mandatory to apply for a personal loan.

Debt-to-Income Ratio:- A Debt-to-Income ratio (DTI) is the percentage of your monthly income to your debts. It shows the ability of the applicant to manage repayments of the new as well as past debts. As a result, you must have a DTI less than or equal to 50% to get your loan approved.

Other charges:- Before applying for a personal loan, you must be aware of extra charges like processing fees, prepayment, and late payment charges that some lenders charge you.

Interest Rates:- Do complete research on the interest rates provided by different lenders and choose the one that offers loans at comparatively low-interest rates.

Now that we have a deeper understanding of personal loans and their requirements let us look at how we can get tax benefits on personal loans.

Three Circumstances When You Can Get Tax Benefits On Personal Loans

When You Take Personal Loans For Business Needs

Take a personal loan to cover your business requirements, such as expanding your business or launching your startup. The interest on that loan will become a liability for the business. Hence, the interest you pay will be considered an expense deducted from the business’s net profit. As a result, it will reduce the total amount of taxable net profit. Moreover, the Income Tax Act has not set any limit on the tax-deductible amount on liabilities of the business. Therefore, this means that the whole interest the person has to pay will be tax-deductible if it is used for business.

When You Take Personal Loan for Renovating Your Home

According to Section 24 of the Income Tax Act, titled “Deductions from Income From House Property,” you can get tax benefits on income from house property. The interest you pay for the funds taken using a personal loan can be deducted from the net taxable income from your residential property. This section 24 will apply only if you use the money for purchasing, constructing, or renovating the house. Since section 24 of the Income Tax Act does not specify the type of loan, so personal loans are eligible for a tax deduction. However, you need to submit the required documents to mention the usage of the funds taken from the personal loan. You can claim a tax deduction of up to INR 2 Lakhs on the personal loan’s interest if you occupy the house.

When You Take A Personal Loan For Purchasing Assets

You cannot claim an immediate tax deduction if you use your loan to purchase jewelry, shares, or other non-residential assets. However, the interest you pay for the personal loan you have taken to buy these assets will be added to the total cost of purchasing the asset. Therefore, if you ever sell that asset, the interest paid will also be deducted from the capital gains and cut as a part of the cost of acquisition which will ultimately reduce the taxable income.

Essential Points to Note On Tax Benefits on Personal Loans

• Personal Loans are not taxable as the loan amount received is not considered an income.
• To qualify for a tax deduction on personal loans. You must submit proof of income tax authorities to substantiate your claim with a bank or auditor’s certificate.
• To claim the tax benefits on a personal loan, you should keep all your important documents like sanction letters, expense vouchers, and bank or auditor’s reports.

Also Read: Tax Exemptions With Personal Loan!

Conclusion

Personal Loans are a boon when you need instant funds. Moreover, you can apply for a personal loan using Buddy Loan at affordable rates within 24 to 48 hours. It is also important to note that tax benefits will be applied only to the interest amount and not the principal loan amount. Last but not least, you must keep your credit score above 750 to become eligible for a personal loan. You can get loans at comparatively lower interest rates with a high credit rating as you will be a credible borrower.

Having any queries? Do reach us at info@buddyloan.com