Personal Loan – The complete guide

A typical loan requires some form of security to be given to the loan provider. However, a Personal Loan does not require any. It is an unsecured loan that any individual with sufficient level of income, good credit score and employment history can avail. Typically, individuals apply for such a loan to handle personal needs i.e marriage, education, vacations, medical emergencies, etc. A number of banks and non-banking financial institutions provide personal loans at attractive interest rates.

In this article, we’ll learn at detail about personal loans, eligibility criteria, top personal loan providers, interest rates, and much more.

Personal loans – Why choose them?

Borrowing money in India is a long and tedious process. Many a time, a financial emergency/crisis requires money immediately to offset the balance. A personal loan does just that without the hassle of a normal loan process. Many a time you can apply and receive approval for a personal loan with 24-48 hours. Here are the top 3 reasons as to why you should opt for a personal loan?

  • Personal Loan Documents – The documentation process is minimal, easy and simple.
  • Personal Loan Instant Approval – Loans can be approved and disbursed within 24-48 hours of you applying for them.
  • Personal Loan Interest Rates – Interest rates on personal loans depend on your credit score, tenure, and repayment capacity. They can be as low as 10 %

 Personal loan comparison

Let us take a look at the salient features such as personal loan interest rates, processing charges and fees of personal loans offered by different banks.

Loan Provider Interest Rate Processing Charges Prepayment/ Foreclosure Charges Bounced Cheque Charges
Axis Bank 15.50% – 24% 1.50% – 2.00% of loan amount + GST None INR 500/ cheque bounce + GST
State Bank of India 10.65 % – 15.15 % 2.02%-3.03% of loan amount. None NA
HDFC Bank 15.75% – 20% Up to 2.50% of the loan amount

(>INR 1000 <= INR 25,000  for Salaried Individuals)

13-24 Months

4% of Outstanding Principal

 

25-36 Months

 

2% of Outstanding Principal

 

>36 Months

 

NIL

NA
Bajaj Finserv 16% 2% – 3% of loan amount Nil INR 1000/bounce
ICICI Bank 13.99% – 18.00% Up to 2.25% of loan amount + GST 1)    5% of outstanding principal

 

OR

 

2)    Interest outstanding for the unexpired loan period.

 

NOTE: Whichever is lower

NA

Personal Loans – Features & Benefits

  1. Flexibility – You are free to use the loan amount for any purpose without hesitation. This is unlike any of the other loans on offer.
  2. No Asset Guarantee – You are not required to put up any of your assets as collateral in order to secure a personal loan. A personal loan in unsecured and completely based on your earning capacity as well as credit history.
  3. Loan period is usually between 1-5 years
  4. Typical loan amount can range from the thousands to the lakhs. This depends on your earning as well as repaying capacity.
  5. Credit score of over 750 helps in securing a personal loan at ease
  6. A good employment record coupled with sufficient annual income are important for a loan provider to approve your personal loan application

Advantages and Disadvantages of a Personal Loan

ADVANTAGES DISADVANTAGES
Quick Approval High Interest Rates
No end-use restrictions Non-flexible EMI options
Unsecured (no asset guarantee)  

Types of Personal Loan

  1. Unsecured Loan: This can be further classified into unsecured personal loan and unsecured business loan. Both of these do not required you to put up collateral as a guarantee
  2. Secured Loan: Requires collateral to be put up before securing the loan. Examples are home mortgages, home equity loans, home equity lines of credit and vehicle loans
  3. Fixed rate personal loan: Constant Interest rate throughout the loan repayment term
  4. Variable rate personal loan: Interest rates vary over the loan term. Exact interest values are given in a schedule post loan approval.
  5. Installment loans: Loan amount is specific and repayment is done in equal installment over a fixed period of time
  6. Lines of Credit: You can use credit as you need until you reach the maximum value of the credit line. You pay interest only on the amount of credit you use.
  7. Other types:
  • Mudra Loan
  • Wedding Loan
  • Home Renovation Loan
  • Student Loan
  • Vacation Loan
  • Festival Loan

Personal Loan Eligibility

Various banks and NBFC’s have set criteria for approving a personal loan application. Before you apply for a personal loan, it is important to note your personal loan eligibility. There are many effective tools available online that help you calculate the same. One such tool is the Person loan eligibility checker. This is a tool offered by most bank websites that lets you know whether you’re eligible or not for a person loan.

  1. The basic requirements to be eligible for a personal loan are:
Criteria Salaried Self Employed
Age 23 – 58 Years 28 – 65 Years
Average Income INR 17,000 (INR 25,000 for metros) ·         INR 40 Lakhs or over for non-professionals

·         INR 15 Lakhs for professionals

Credit Score (CIBIL rating) Above 750 Above 750
Minimum Loan Amount INR 75,000 INR 75,000
Maximum Loan Amount INR 20,00,000 INR 15,00,000

  1. Specific Eligibility Criteria for Top Banks

Here are links to some of the eligibility pages for the top personal loan providers

 Personal Loan Eligibility Calculator

A loan eligibility calculator helps you determine if you are eligible for a loan or not. It takes into account your income, credit score and employment records. In addition, the bank loan calculator also lets you know the interest rate, loan repayment tenure and the different loan repayment options.

The 4 most important criteria while calculating loan eligibility are:

  • Net monthly income
  • Existing loan liabilities
  • Rate of Interest
  • Loan Tenure

While using the paisawiki loan eligibility calculator, scroll these four variables to an amount that suits your capacity and needs. The EMI and Rate of Interest will be displayed in the results.

Using tools and information provided on the paisawiki loan eligibility calculator, loan eligibility calculator by SBI or HDFC loan eligibility calculator pages, you can make an informed decision before applying for a personal loan.

 Documents required for personal loan application

The personal loan documents required while submitting an application for salaried and non-salaried individuals are given below.

  1. Personal loan for salaried individuals
  • Photo I.D proof (Passport, DL, Voter I.D, PAN Card)
  • Address proof (Passport or utility bills)
  • Latest bank statement of salary account (3 months)
  • Salary slips for last 3 months
  1. Personal loan for self-employed individuals
  • Photo I.D proof (Passport, DL, Voter I.D, PAN Card)
  • Address proof (Passport or utility bills)
  • Proof of Income (Audited financials for last 2 years)
  • Last 6 months bank statements
  • Office Address proof

 Why should you apply for a personal loan?

There are many reasons for you choosing to apply for a personal line. Mainly being the sudden onset of financial distress or a big spend coming in the near future. The biggest reason as to why you should apply for a personal loan are the many advantages it offers:

  • Minimal Documentation
  • Online Eligibility Check
  • Instant loan approval
  • Unsecured and without asset guarantee

How do you apply for a personal loan?

Now that you’ve got all the information you can, and checked your CIBIL score as well as loan eligibility, you can proceed to a loan application. Applying for a personal loan can be done both online and offline. Before we learn about the two different processes, let us take a look at the different banks/NBFC’s offering a personal loan:

  • Axis Bank Personal Loan
  • Bajaj Finance Personal Loan
  • Hdfc personal loan
  • Sbi personal loan
  • Icici personal loan
  • Bajaj Finserv personal loan
  • Capital first personal loan
  • Citibank personal loan
  • Fullerton personal loan
  • Canara bank personal loan
  • Kotak personal loan
  • Shriram finance personal loan
  • Bank of Baroda personal loan
  • Idbi personal loan
  • Standard Chartered personal loan
  • Bank of India personal loan
  • Aditya Birla finance personal loan
  • Union bank personal loan
  • Central bank of India personal loan
  • Punjab national bank personal loan
  1. Online Apply

Head to any of the above mentioned bank/NBFC websites, and fill out the online personal loan application form. Upload necessary documents and finish creating your online personal loan account. Post document and address verification, your loan amount will be disbursed in 24-48 hours.

  1. Offline Apply

Visit the nearest branch of the above mentioned banks. Speak to the personal loan section. Fill out the application and submit it along with necessary documents. Post document and address verification, your loan amount will be disbursed in 24-48 hours.

Where to apply for Personal Loan?

  1. Personal Loan in Bangalore

Personal loans for individuals residing in the silicon valley of India are easily available. Applications can be submitted online on the bank/NBFC website. You can also do the entire process offline by visiting a branch of any certified Banks/NBFC’s.

Interest rates in Bangalore vary from 12.99% – 20%

  1. Personal Loan in Chennai

One of the biggest commercial and Industrial hubs in India, availing a personal loan in Chennai is fairly easy. Similar to Bangalore, you can complete the application process online or by visiting the nearest branch of a recognized bank/NBFC.

Interest rates in Chennai vary from 12.99% – 20%

  1. Personal Loan in Kolkata

The capital of West Bengal, Kolkata is an educational, corporate, and cultural hub. Its many lending institutions make it easy for Kolkata residents to apply for a personal loan. This can be easily done online or offline by visiting a local branch of the bank/NBFC

  1. Personal Loan in Mumbai

The financial capital of the country, Bombay is home to the headquarters of many financial institutions. This makes the personal loan application process very accessible and hassle free.

Interest rates in Mumbai vary from 12.99% – 20%

  1. Personal Loan in Hyderabad

Hyderabad is only second to Bangalore w.r.t the technological boom. Tech parks are springing up all over the city and so have leading bank and lending institutions. If you’re looking for a personal loan in Hyderabad, you will enjoy the convenience and ease of service provided in the city.

 Check Status of Personal Loan

  1. Check loan application status: Offline

By calling customer care of your chosen bank/NBFC and requesting to speak with the personal loans executive.

You can also visit the nearest branch office and enquire your loan application status.

  1. Check loan application status: Online

Almost all bank websites provide a log in, or application status tracking tools to help you track your loan application status.

You will need to enter the following details to complete and online check:

  • Applicant Name
  • Reference Number
  • Date of Birth
  • Mobile Number
  • PAN Number

Popular loan application status tracking links:

 Best Banks for a Personal Loan

  1. SBI Personal Loan

You’re offered a personal loan of up to 12x your net monthly Income from India’s top public sector bank. They also have a separate personal loan division making the loan application and disbursal process quick and hassle free.

  1. Axis Bank Personal Loan

The bank is known for the personal customer service it provides to all loan applicants. In addition, Axis Bank Personal Loans have zero pre-payment charges!

  1. ICICI Personal Loan

ICICI offers attractive rates of interest and EMI options on their personal loans. Interest rates can be as low as 13.99%

  1. Bajaj Finserv Personal Loan

This is the leading NBFC provider of personal loans in India. They allow prepayment up to 6 times in a calendar year with a minimum amount per prepay exceeding 3 EMIs

  1. HDFC Personal Loan

One of the leading personal loan lenders in the country. The highlight of the HDFC personal loan is that all prepayment charges are removed post a 36 month period

How to choose the right Personal Loan?

With so many options out there, it can be taxing to narrow done to one. But, before you begin the processing of narrowing it down, you need to keep in mind some important points before applying for a personal loan.

  1. CIBIL Score/Credit History – Carefully assess your credit history to determine the loan amount you will be eligible for.
  2. Interest Rate – As personal loans do not involve any collateral, their interest rates can be quite high. Check interest rates of all providers before applying.
  3. Fees and Charges of Personal Loan – In addition to interest rates, lenders charge various application fees and processing charges. It is important to assess these to match your requirements.
  4. Thorough Research – Learn all you can and compare personal loans from various providers before narrowing it down.

 Tips for applying to a Personal Loan

  • Check your Credit Rating
  • Study all the Interest Rates thoroughly
  • Consider other forms of credit i.e credit cards
  • Keep pre-payment charges as one of your deciding factors
  • Check if you get Payment Protection Insurance (PPI) in your loan
  • Consider all options and apply to banks that offer you the best loan
  • Apply for more than you need as it helps in faster application processing
  • Ensure the tenure suits your financial capacity
  • Do not take too many personal loans

 How to avoid a Personal Loan rejection?

To ensure your loan application doesn’t get rejected, ensure the following points are abided by before you submit a personal loan application.

  • Ensure your credit score is good enough. Do a thorough analysis.
  • Sufficient monthly income and good employment history are essential for any loan provider to accept your application
  • Double check the details filled out
  • Consider any unpaid loans. Many unpaid loans can put off a lender from accepting your application
  • Do not send too many applications in a short span of time

 Personal Loan EMI Calculator

Another important factor to consider before applying for a personal loan is the monthly payments you will have to make. Bear in mind, this should not be an amount that causes you a huge financial burden.

To help potential loan customers, many banks have designed tools to make this important decision. The personal loan EMI calculator lets you know the exact amount you will have to dish out every month during your loan tenure.

  1. How the loan EMI calculator works?

The loan EMI calculator takes into account the following 4 parameters:

  • Enter loan amount
  • Interest Rate (Automatic)
  • Select loan repayment tenure
  • Processing charges (Automatic)
  1. Links to popular loan emi calculators

Personal Loan Interest Rates

Unlike a typical home loan, car loan, or any other form of secured loans, personal loan interests vary from individual to individual and on the loan providers.

Here are some of the interest rates of leading loan providers in India

BANK/NBFC INTEREST RATES
SBI 12.55%-17.65%
Axis Bank 15.50%-24%
ICICI 11.49%-22.00%
Tata Capital 12.50% to 19%
Bajaj Finserv 16%
Fullerton India 17.25%-35%
IndusInd Bank Upto 23%
Standard Chartered bANK Upto 27%
Citibank Starting at 11.75%
HDFC 11.49%-20%

Kotak Mahindra Bank
11.50-24%

HSBC
12.25%-17.50%

Links to interest rates and charges of leading banks in India:

  1. SBI Personal Loan Interest Rate

State Bank of India offers a variety of attractive personal loan options based on the requirements of customers. Interest rates for each kind of customer vary. In addition, SBI does not charge any pre-payment fee.

You can find the interest rates by clicking here

  1. HDFC Personal Loan Interest Rate

HDFC offers personal loans with minimal documentation and competitive interest rates. Typically the interest rates vary between 13-20% and are on a monthly reducing basis. They also offer life protection cover of up to 8 lacs for accidental hospitalization and up to 1 lacs for death or permanent disability of the loan borrower.

You can find complete details by clicking here

  1. ICICI Personal Loan Interest Rate
  2. Axis Bank Personal Loan Interest Rate

 FAQ’s on Personal Loans

  • Do’s and Don’ts While Taking a Personal Loan

There are a number of things to keep in mind before you apply for a personal loan. Ensure your credit history, monthly income and employment record all meet the eligibility criteria set by banks. Do not keep applying for loans in a short period of time, or draft a new application if you have pending loan payments.

  • When Should I Choose a Personal Loan?

When you’re in immediate need of money and do not wish to put up any assets as collateral.

  • How to Improve Your Chances of Getting a Personal Loan?

Maintain a good credit history and employment records. Fill out all necessary details correctly and submit necessary documents.

  • What is the Typical Amount and Period of a Personal Loan?

Amounts vary from the thousands to the lakhs. Typical period of a personal loan is between 1-5 Years

  • What is the Significance of a Credit Report in Approving a Personal Loan?

A credit report determines your loan repayment capacity. Having an excellent credit repayment record helps you in getting credit in the future.

  • My Credit Score is Below 750. Will I Get a Personal Loan?

Although your chances are lesser with a credit score below 750, showing sufficient proof that your income capacity can help you repay the loan within the tenure amount can help you qualify for a personal loan.

  • What are the Other Factors That Influence Approval for a Personal Loan, Apart from Credit History?
  • Net monthly Income
  • Employment Record
  • Loan Tenure
  • How do I Choose the Best Personal Loan Offer?
  • How to Choose Personal Loan Tenure Wisely?

Use the loan EMI calculator to choose a suitable amount you can pay every month and the tenure will be shown along with it.

  • Personal Loan against Mutual Funds?

One can take a personal loan against their mutual funds in cases where they feel their income isn’t sufficient for the loan amount requested. The mutual fund value will help to even the income deficit and qualify you for a personal loan

  • What is the minimum tenure of a personal loan?

Minimum tenure is 1 year

  • Will the banks charge me a processing fee?

Yes, almost all banks charge a 2-4% processing fee

  • How can I repay my personal loan?

You can repay with monthly instalments over a loan tenure period. Personal loans also allow you to pay the remaining loan balance before the end of your tenure.

  • Will I need a guarantor to take a personal loan?

No, a personal loan is unsecured and does not require any guarantees

  • Can I club my income with my spouse to take a personal loan?

Yes, a personal loan can be applied by you and your spouse together. A co borrower on the application elevates you to a higher pay bracket.

  • What is the maximum loan limit offered for personal loan?

Maximum loan amount is around 15-25 Lakhs. Again, dependent on the borrower’s potential.

  • What is the rate of interest that will be charged on my personal loan?

Rates of Interest vary from bank to bank. You can find a detailed list by clicking here

  • Can I Track my Loan Application?

Yes, your application can be tracked online on the lenders website or offline (customer care or visiting the bank branch)

  • What is the best way to apply for personal Loan?

The best way to apply for a personal loan is by conducting thorough research, choosing the right lender, and getting all necessary documents ready. This ensures the processing is quicker and hassle free

  • How do I stop executives from calling me to let me know about other loans?

Add yourself to the lenders DND list

  • Do I need to open a bank account to service my personal loan?

No, it is not necessary for you to open a bank account before applying for a personal loan.

  • What are the documents required to seek a personal loan application approval?
  1. Personal loan for salaried individuals
  • Photo I.D proof (Passport, DL, Voter I.D, PAN Card)
  • Address proof (Passport or utility bills)
  • Latest bank statement of salary account (3 months)
  • Salary slips for last 3 months
  1. Personal loan for self-employed individuals
  • Photo I.D proof (Passport, DL, Voter I.D, PAN Card)
  • Address proof (Passport or utility bills)
  • Proof of Income (Audited financials for last 2 years)
  • Last 6 months bank statements
  • Office Address proof
  • How will I be eligible for a relationship discount?

By having a pre-existing relation with the vendor i.e having an account or having applied for a loan/credit card with them before you submit a personal loan application.

  • Will the CIBIL score affect my personal loan interest rate?

Higher CIBIL score can translate to lower interest rates.

  • Will the banks check my CIBIL score while reviewing my application?

Yes. Your PAN details are mandatory. These are used to pull up your CIBIL report.

  • How many days does it take for the bank to disburse the personal loan amount?

After your application has been successfully processed, loan amount will be disbursed in 24-48 hours.

  • Do I get to choose between a fixed and a floating rate of interest for the personal loan?
  • Do I need to submit any security or collateral to take a personal loan?

No, this is not required for a personal loan.

  • Is part- prepayment allowed on my personal loan?

Part-prepayment is allowed on some personal loan options such as the HDFC Personal Loan