Nifty99000 100%

Sensex99000 100%

Article rating: 5.0
Article rating: 5.0
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating


What you should know about personal loans

Author: Team Finapolis/Tuesday, January 9, 2018/Categories: Loans

What you should know about personal loans

A personal loan is a type of unsecured loan meant to meet your current financial shortcomings. This type of loan doesn’t require a collateral or security. Unlike other loans, this gives you flexibility to use the money as you please.  Personal loan is your instant solution to emergency money. It can be used for taking vacations, weddings, personal expenditure, medical emergencies and such situations.


Before sanctioning a personal loan, the person’s age, monthly income, loan repayment capacity are taken into account. You need to have a regular source of income, whether from a salary or from your business, to avail this loan. The credit history and existing loans are checked before sanctioning.

Loan Duration

The duration of a personal loan is 1-5 years. In certain cases it can be extended or made shorter, but such cases are rare.

Usually the loan in sanctioned within 7 working days of applying. Once approved, the money is handed over in the form of a cheque or draft; or directly deposited in the lender’s savings account.

Approval Process

This process can take anywhere between 2 days and 2 weeks and is completely at the discretion of the loan sanctioning officer. Once sanctioned, the loan amount is disbursed within 7 working days.

Loaned Amount

The money is loaned in such a way that the monthly EMI subsequently is not more than 40-50% of the lender’s salary. The loaned amount depends on whether the lender is on a salaried job or self-employed. The minimum amount that can be loaned is Rs 30,000.

Before zeroing in on one bank, it’s better to check the offers from other banks and compare interest rates, tenures, processing fee, etc. Cross-checking will ensure you get the scheme best suited to your requirements.

Depending on high credit scores, the bank decides the maximum amount to be loaned. If you credit score is between 750 and 900, it means you’re credit card dues are clear and no loan repayment is pending. In such a case, the bank classifies you as a safe lender and allows you to borrow higher amounts. At the same time if you have unpaid credit card dues and belong to a low income bracket, then you are not eligible for a loan of a higher amount.

The loan can be applied jointly with either the spouse or parents. If applied jointly, then it is put in a high income bracket, enabling the lender to avail a loan of higher amount. However, if the co-applicant has a low credit score, it can affect the loan application and there are chances of the application not being approved.

Lower EMI amount doesn’t necessarily have to be an advantage. It depends on the loan tenure and interest rate. Due to a combination of these factors, it is possible that you’ll end up paying a higher interest rate in pursuit of low EMI amount. Thus choose your scheme carefully to avoid inconveniences in the future.

Interest Rates

As personal loans are unsecured loans; the interest rate is generally higher as compared to those of secured loans such as home loan, car loan, etc. Some leading banks provide loans at interest rates as low as 11.5% but again it depends on factors like income level, credit score, etc.

In addition to the interest on the principal amount, a processing fee of 1-2% is generally charged on the principal. This goes towards all the paperwork that needs to be processed for sanctioning of the loan. If the lender has a long standing relationship with the bank, then this processing fee is generally waived off.

There are two types of interest rates to choose from- floating interest rate and fixed interest rate. The fixed rate doesn’t change during the tenure of the loan and the EMIs for each month remains fixed. Floating rates, on the other hand, are changed on a half-yearly or annual basis, based on the reducing balance method of calculating interest.

Loan Repayment

The loan can be paid through either EMIs or through post-dated cheques. Pre-paying the loan is possible but different banks have different condition. Some banks allow pre-payment only after a certain number of payments are made. Other banks allow the lender to pre pay the loan only if the full amount is being paid back.

Banks charge a foreclosure fee for paying off the loan before the tenure is up. This charge is usually 1-2% of the outstanding principal. Certain banks charge a higher fee for foreclosure.  

Credit Card Loan vs Personal Loan

Both credit card loan and personal loan are unsecured and availed on the income level. But in case of credit card loan, you only approach the bank that issued the card and have to abide by their interest rates and repayment plans.

A personal loan, on the other hand, can be obtained from any lender and the lender can choose which interest rate and repayment scheme suits them best.

Print Rate this article:

Number of views (464)/Comments (0)

rajyashree guha

Team Finapolis

Other posts by Team Finapolis
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free