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Unexpected expenses can arise at any time, no matter how well you plan your finances. In such moments, borrowing from friends or relying on credit cards may not be ideal. This is where a personal loan becomes a practical option. If you’re wondering about the personal loan meaning or what is meant by a personal loan, it’s an unsecured loan that helps you manage urgent or planned expenses at relatively lower interest rates.
Whether it’s medical needs, home repairs, debt consolidation, or a big purchase, personal loans are easy to access, require no collateral, and are often approved quickly. Before choosing one, it’s important to understand what is personal loan and how personal loans work, as personal loan impact your credit score and overall financial health.
What Is Personal Loan?
Personal loan is a type of unsecured credit that allows you to borrow a fixed amount for almost any financial requirement, whether planned or unexpected. It offers a lump sum upfront, which you repay through monthly instalments over a set tenure.
Since no collateral is required, approval is based on your income, employment stability, credit history, and repayment capacity. Because the lender carries more risk, personal loans usually have higher interest rates than secured loans but remain popular due to their quick processing and flexible use.
However, missing repayments can affect your credit score and future borrowing ability, so it’s important to take a personal loan only when you’re confident about meeting the EMI commitments.
How Personal Loan Works?
Personal loan works much like any other loan, where you start by applying for your desired loan and submitting the required documents to the bank after evaluating your creditworthiness. The funds will be transferred to your bank account, and you can use them as you see fit.
With a personal loan, you receive a lump sum of money that can be used for various expenses. You then repay this amount in regular installments over a set period.
If you have a fixed-rate loan, your monthly payments will remain unchanged until the loan is fully paid off. However, if you have a variable rate loan, your interest rate may change, altering the monthly amount you owe.
Types of Personal Loans
1. Unsecured Personal Loans
These loans don’t require collateral or security and are approved based on your creditworthiness. You can use them for different purposes, like debt consolidation, medical expenses, or even a vacation.
2. Secured Personal Loans
Unlike unsecured loans, these loans are backed by collateral, like your car or savings account. Because there’s less risk for the lender, secured loans may offer lower interest rates and higher borrowing limits.
3. Fixed-Rate Personal Loans
The interest rate remains constant throughout the loan term, and your monthly payments remain unchanged. It provides predictability and can be easier to budget.
4. Variable-Rate Personal Loans
Interest rates for these loans may fluctuate based on changes in a specific financial index. This can lead to varying your monthly payments.
5. Debt Consolidation Loans
It helps you consolidate multiple debts into a manageable monthly payment. It can save you money on interest and simplify your financial obligations.
6. Home Improvement Loans
These are loans intended for home improvement projects. It can be secured or unsecured, allowing you to upgrade or repair your home.
7. Medical Loans
These loans cover medical expenses, including surgeries, treatments, or other healthcare-related costs not covered by insurance. Through this, you manage unexpected medical bills.
8. Wedding Loans
These loans cover wedding-related expenses like venue, catering, attire, etc.
9. Education Loans
These loans cover educational expenses like tuition, books, and living costs for college or vocational training. It can be used for yourself or for financing a child’s education.
10. Emergency Loans
These loans provide quick access to funds for unexpected and urgent expenses like medical emergencies or sudden repairs.
So these are some common types of personal loans in India. Remember, the availability and terms of these loans may vary depending on the lender and your financial situation. Always compare options and carefully review the terms and conditions before applying for any loan.
Benefits of Personal Loan
Here are some personal loan benefits:
- Flexibility of Use: You can use a Personal Loan for various purposes, such as consolidating debt, covering medical expenses, financing a wedding, or making home improvements.
- No Collateral Required: Unlike other types of loans, Personal Loans are unsecured, meaning you don't need to put up any collateral like a house or car.
- Quick Access to Funds: With streamlined application processes, many lenders can disburse Personal Loan funds relatively quickly, sometimes within 48 hours.
- Fixed or Variable Interest Rates: You can choose between fixed-rate and variable-rate Personal Loans depending on your preference and financial strategy. Fixed rates provide stability, while variable rates may offer lower initial interest.
- Debt Consolidation: If you have multiple high-interest debts, a Personal Loan can be used to consolidate them into a single, more manageable monthly payment with a potentially lower interest rate.
- Builds Credit History: Responsible Personal Loan repayment can positively impact your credit score.
- Predictable Payments: With fixed-rate Personal Loans, your monthly payments remain constant throughout the loan term. It provides predictability and helps in financial planning.
- Minimal Documentation: Personal Loans generally require less documentation than other loans, making the application process more straightforward and efficient.
What Are The Documents Required For Personal Loan In India?
Documentation varies from lender to lender. Here are the essential documents required for Personal Loan:
- Proof of Income
- Proof of Residence and Identity
- Salary slips and Form 16
- Bank statements
- Latest Income-Tax Returns
- Credit report
- Age proof (birth certificate, passport, Aadhaar card, voter ID, PAN card, etc.)
- Photo identification proof (Aadhaar card, voter ID, PAN card, passport, driving license, etc.)
- Address proof (Aadhaar card, passport, electricity bill, telephone bill, ration card, etc.)
What Is the Personal Loan Interest Rate in India?
Interest Rate is the percentage of extra money you pay in addition to the borrowed amount. Personal loans have higher interest rates than different loans. Currently, it ranges from 10% to 15% annually. However, these rates can vary from one bank to another. Your income, credit history, existing loans and EMIs, credit score, and other financial considerations determine the specific rate.
Remember, personal loans may involve processing fees and other associated costs in addition to the interest rate. Here is the list of interest rates offered by various lenders in India.
| Loan Providers | Personal Loan Interest Rates |
|---|---|
|
State Bank of India
|
12.50% - 16.60% |
|
ICICI Bank |
11.59% - 18.49%
|
|
Axis Bank Limited |
15.50% - 24.00% |
|
Bajaj Finserv |
11.99% - 15.50%
|
|
Tata Capital
|
11.99% -19.50%
|
|
UCO Bank
|
11.20% -11.45%
|
|
HDFC Bank
|
11.49% -19.8%
|
|
Andhra Bank
|
13.05% - 14.30%
|
|
Punjab National Bank
|
10.95% - 14.70%
|
|
IIFL
|
13.50% - 18.00% |
Eligibility Criteria For Personal Loan in India?
| Eligibility | Requirements |
|---|---|
|
Age |
Salaried employees are eligible between 21 and 58 years, while self- employed individuals range from 25 to 65. |
|
Income |
A general minimum monthly income varies between Rs. 25,000 - 30,000. Again, it depends on the bank. |
|
Employment Status |
Both salaried and self-employed individuals can apply. |
|
Credit Score |
A good Credit score of 700 or above can be leveraged for favorable loan terms. Some banks prefer a minimum of 700, while others seek 750 or higher. |
|
Work Experience |
Some lenders may require a minimum period of employment, particularly for salaried individuals. |
|
Citizenship |
Personal loan eligibility may be restricted to Indian citizens or specific categories of non-resident Indians (NRIs). |
These are general criteria, and specifics may vary depending on the lender. Always check with your chosen financial institution for their specific eligibility requirements.
How To Choose the Best Personal Loan?
- Compare Interest Loan
- Choose a suitable loan tenure to match your budget.
- Be aware of fees and charges. Opt for loans with fewer fees.
- Check credit score requirements.
- Opt for loans with minimal documentation requirements.
- Consider quick disbursal options for urgent needs.
- Be aware of cancellation policies with a 48-hour freelook period.
Final Words
A personal loan can be a useful tool in managing your finances when used wisely. The key is to borrow only what you truly need, understand the terms clearly, and commit to timely repayments. Open communication with your lender and a disciplined repayment plan will help you maintain a healthy credit profile.
The goal is not just accessing quick funds, but safeguarding your long-term financial stability and building a stronger financial future.Hope you understood everything about what is personal loan in India and how it works.
FAQS on Personal Loan
What is a personal loan and how does it work?
A personal loan is unsecured credit you receive as a lump sum and repay through fixed EMIs. Approval depends on your income, credit score, and repayment ability.
What is the eligibility criteria for a personal loan?
Eligibility depends on your age, income, employment stability, credit score, and repayment capacity. Lenders prefer salaried or stable self-employed applicants with a good credit history.
What documents are required for a personal loan?
Most lenders ask for identity proof, address proof, income documents like salary slips or bank statements, and basic KYC details to verify your financial profile.
How much personal loan can I get based on my salary?
Loan amounts depend on your monthly income, existing EMIs, credit score, and lender policy. Generally, lenders allow EMIs up to 40–50% of your income.
What is the minimum credit score required for a personal loan?
A credit score of 700 or above is typically preferred. Some lenders may approve lower scores but at higher interest rates or stricter terms.
Can I repay a personal loan early?
Yes, most lenders allow early repayment or foreclosure. However, some may charge a prepayment fee, so check the loan terms before closing it early.
Happy investing and thank you for reading!
Disclaimer:
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