Personal Loan

What is a Personal Loan?

A Personal Loan is a type of unsecured loan, meaning you don’t have to pledge an object of value to secure a loan. The approving bank or NBFC gives you the loan amount directly and you can choose to use it for education, wedding, house repairs, vacation or any other personal emergency. The amount you get approved for depends on various factors though. You can choose the tenure you wish to back the amount, so that your EMI is manageable to you.

Why would you need a Personal Loan?

If you are planning a vacation, or getting married, or trying to get admission for your child into school, renovating your home or any other small requirement that you have, and are running short on savings or funds, you may choose to apply for a Personal Loan. In another scenario, if you have debts with multiple banks / agencies and wish to consolidate them together so that your EMI amount reduces, and that you are now paying back a single bank, it’s easier for you to manage your debt and not forget making payments on time.

What are the interest rates on a Personal Loan in India?

Different banks offer different rates of interest to their customers and that these rates could range from a minimum of 10.50% up to 15.10%, sometimes going up to 18% if you are looking for an instant approval in 1-2 days. The rate of interest offered to you as an individual depends on the category of the organization you are working with, the higher the category of the organization, the lower the risk to the payment of non-payment of dues due to layoff or irregular salary pay-outs, hence you are offered the most attractive deals with lesser interest rates.

What are the eligibility criteria to apply for a Personal Loan?

The first element of check is your age, Personal loans are given to an individual of at least 21 years and up to 60 years if employed or 65 years if self-employed. The next is your income amount, generally banks look out for a minimum salary amount of INR 25,000 to consider your application. If your income is below that, it may be difficult for your application to be accepted, or that you may have to compensate with a higher rate of interest to cover the bank's risk of lending to you. Some banks may process an application for an individual with a salary amount of INR 15,000 or INR 20,000 too, however INR 25,000 is the general amount they look out for.

What are the various documents you need to have, in order to apply for a Personal Loan?

The KYC documents required to apply for a personal loan are as follows: Identification document like Aadhaar card, Voter’s ID card and driving license, your employee ID card, last 2-3 months’ salary slips, last 1-3 months’ bank statement, utility bill or passport as proof of residence, if Aadhaar has already been provided and additional document is required.

What are the various things to bear in mind before you apply for a Personal Loan?

Bear in mind that each application for a personal loan affects your credit score, as multiple banks run a check against your score, and each search brings your score down. So unless your application is rejected by a bank, DO NOT apply simultaneously to another bank, it’s advisable to wait for a response, and then act.

Another point to bear in mind is the interest rate that you would be charged. If your requirement is very urgent and you need to take a loan, however after a few months you have additional funds at your disposal where you can pay more than the EMI to foreclose your loan, it's advisable to do that to avoid paying additional interest. Generally, the foreclosure lock period is 6 months, check with your bank on their policy and take action.

How to get a low interest rate for Personal Loan

Usually, the interest rate applied to a personal loan is lower if you are considered by the lender to be financially responsible. Here are several forms you may be able to get a low interest rate on your personal loan:

  • Maintain a good credit score and a clear credit history
  • Ensure that you have a minimum unpaid debt, i.e. a 30% or less credit utilization ratio
  • Apply for a personal loan with a lender with whom you have a previous relationship.

How do you reduce your monthly EMI?

When you find it difficult to keep up with your monthly loan repayments, you can be able to obtain a lower EMI by extending your repayment period. Nonetheless, you should bear in mind that in this case, due to a longer period of time, you would end up paying more interest over the lifetime of the loan.

The option is to opt for a swap of personal credit balances. In this situation, the principal outstanding on your existing loan is moved to a new lender at a lower interest rate. As a result of the lower interest rate, your individual EMI payments will be that.

How Loan verification works

The approval process for a personal loan includes the following main steps:

  • After you have submitted your online application, your preferred lender will receive your online application for a loan.
  • Subsequently, the lender's representative will contact you to check the particulars of the application and arrange for the documentation needed for your loan application to be collected.
  • If the documents have been obtained and checked successfully, the application for a personal loan is accepted.
  • Loan is disbursed after the applicant has signed a loan agreement.


What should be my credit score to be eligible for a Personal Loan?

A credit score of above 750 would get your application through, assuming other qualifying factors are in place, sometimes a score of 500 would also get your application accepted, however the interest rate they would apply to your loan would be higher. So it’s advisable for you to check your current credit score to see what rate of interest may be applied to your loan, and wait for your score to be better if you are not in a hurry for funds.

What are the other factors that decide my eligibility score?

Apart from your credit score, your net monthly salary/income, your place of residence (city/town/house if owned or on rent), tenure in current organization, your organization’s category as per the bank’s lending policy, your existing loan amounts (their remaining tenure, the EMIs you pay, the total outstanding due) are some of the other factors that determine your eligibility and the amount you are eligible for.

How long would it take for my application to be approved for a Personal Loan?

Sometimes banks give their existing customers an option of a pre-approved loan. In this case, it would be a matter of a few minutes that your loan amount would be disbursed. Otherwise it could take anywhere between 1-4 business days for your loan to be approved and your amount disbursed.

Can a student apply for a Personal Loan?

Typically, students are not eligible for a personal loan as a secure source of income and a decent credit score is a requirement. However, if you have a stable monthly income and meet the other eligibility requirements of the lender, you can easily make use of a personal loan.

If I have a home loan, can I get a Personal Loan?

Yes, you can apply for a personal loan even though you have a home loan already. However, the chances of having the loan approved will depend on your ability to repay, which in turn depends on your monthly income and credit score.

Personal Loan Interest Rates comparison – (Few Major Banks)

S.No. Bank PL – Rate of Interest
1 HDFC 10.75%
2 ICICI 11.25%
3 AXIS 10.99%
4 Kotak 10.75%
5 RBL 13.99%
6 SCB 10.99%
7 SBI 10.55%

Disclaimer: The below figures are as on April 1st 2020, and are subject to change basis the bank’s discretion and/or policy at any time. Hence it is advisable to check with the bank at the time of application for the current and applicable rate of interest.