What is a Personal Loan in India?
A personal loan is an unsecured loan offered by banks and NBFCs (Non-Banking Financial Companies) that you can use for almost any purpose, from medical emergencies to weddings, home renovations, or debt consolidation. Unlike home loans or car loans, personal loans typically don't require collateral, which means you don't need to put up any asset as security.
Personal loans are installment loans, meaning you borrow a fixed amount of money and repay it with interest in regular monthly payments (EMIs) over a set period, usually between 1 to 5 years in India.
Types of Personal Loans in India
1. Unsecured Personal Loans
These are the most common type of personal loans in India. They don't require collateral and are based on your creditworthiness, income, and employment stability.
2. Secured Personal Loans
These require collateral (like fixed deposits, gold, or property) and typically have lower interest rates as a result. Examples include loan against property (LAP) or gold loans.
3. Fixed-Rate Loans
The interest rate remains the same throughout the loan term, making EMIs predictable. Most Indian banks offer fixed-rate personal loans.
4. Pre-approved Personal Loans
Offered by banks to existing customers with good repayment history, often with quick disbursal and minimal documentation.
5. Debt Consolidation Loans
Specifically designed to combine multiple debts (like credit cards or other loans) into one loan with a single EMI payment.
How Personal Loans Work in India
The personal loan process in India typically follows these steps:
- Application: You apply with a bank/NBFC, providing KYC documents, income proof, and other required information.
- Approval: The lender reviews your CIBIL score (usually 750+ is preferred), income, employment history, and other factors.
- Disbursal: If approved, the lender disburses the loan amount to your bank account, usually within 24-72 hours for digital lenders.
- Repayment: You pay fixed EMIs (Equated Monthly Installments) until the loan is paid off.
Loan amounts in India typically range from ₹50,000 to ₹40 lakhs, with repayment terms from 6 months to 5 years. Interest rates vary based on your credit score and other factors, ranging from about 10% to 24% p.a.
Personal Loan Interest Rates and Fees in India
| CIBIL Score Range | Average Interest Rate (2023) | Loan Amount Range |
|---|---|---|
| 750-900 (Excellent) | 10.5% - 13.5% p.a. | ₹50,000 - ₹40 lakhs |
| 700-749 (Good) | 14% - 17% p.a. | ₹50,000 - ₹25 lakhs |
| 650-699 (Fair) | 18% - 22% p.a. | ₹50,000 - ₹15 lakhs |
| 300-649 (Poor) | 22% - 24% p.a. | ₹50,000 - ₹5 lakhs |
Common Fees in India:
- Processing fees: 0.5% to 3% of the loan amount (GST extra)
- Prepayment charges: 0-5% if you repay early (varies by lender)
- Late payment fees: ₹500 to ₹1,000 per default
- Documentation charges: ₹500 to ₹2,000 in some cases
- Loan cancellation charges: If you cancel after approval
Pros and Cons of Personal Loans in India
Advantages:
- Quick disbursal (often within 24-72 hours)
- No collateral required for unsecured loans
- Flexible end-use (weddings, travel, medical, etc.)
- Fixed EMIs make budgeting easier
- Lower interest rates than credit cards (typically 12-24% vs 24-48%)
- Potential to improve CIBIL score with timely EMI payments
Disadvantages:
- Higher interest rates than secured loans (like home loans)
- Processing fees add to the total cost
- Strict eligibility criteria for best rates
- EMIs reduce monthly disposable income
- Risk of falling into debt trap if not managed properly
How to Get a Personal Loan in India
Follow these steps to increase your chances of approval and get the best terms:
1. Check Your CIBIL Score
Get your free credit report from CIBIL, Experian, or CRIF High Mark. A score above 750 gets better rates.
2. Calculate Your EMI Affordability
Use EMI calculators to ensure loan payments won't exceed 40-50% of your monthly income.
3. Compare Lenders on Paisabazaar/BankBazaar
Compare rates from multiple banks and NBFCs on aggregator platforms.
4. Check Pre-approved Offers
Your existing bank may offer pre-approved loans at better rates.
5. Gather Documentation
Have ready: PAN card, Aadhaar, salary slips (last 3 months), bank statements (6 months), and address proof.
6. Apply Online for Faster Processing
Digital applications with HDFC, ICICI, Axis, or fintech lenders like MoneyTap often process faster.
7. Review the Sanction Letter Carefully
Verify all terms - interest rate, tenure, fees, prepayment clauses before accepting.
Alternatives to Personal Loans in India
Credit Cards
For smaller expenses, a credit card with 0% interest EMI conversion might be better for planned purchases.
Gold Loans
If you have gold jewelry, loans against gold offer lower rates (7-12%) but require collateral.
Loan Against Fixed Deposit
Banks offer loans at 1-2% above your FD rate, making it cheaper than personal loans.
PPF/EPF Withdrawals
For specific needs like medical or education, partial withdrawals may be possible.
Peer-to-Peer Lending
Platforms like Faircent connect borrowers with individual investors, often at competitive rates.
Ready to Apply for a Personal Loan?
Compare rates from top Indian lenders and find the best personal loan for your needs.
Check Your Rates NowFrequently Asked Questions
How long does it take to get a personal loan in India?
Digital lenders like IDFC First, Axis, or fintech apps can disburse within 24 hours for pre-approved customers. Traditional banks take 2-7 working days.
Can I get a personal loan with low CIBIL score in India?
Yes, some NBFCs like Bajaj Finserv or Fullerton India offer loans to borrowers with scores as low as 650, but at higher interest rates (18-24%).
Does applying for a personal loan hurt my CIBIL score?
Each application causes a hard inquiry which may lower your score by a few points. Multiple applications within 45 days count as one for score calculation.
Can I prepay a personal loan in India?
Most banks allow prepayment after 6-12 EMIs, often with a 2-5% prepayment charge. Some like SBI waive this for floating rate loans.
What's the difference between personal loan and loan against property?
Loan against property (LAP) requires collateral (your home/land) but offers lower rates (8-12%) and longer tenures (up to 15 years) compared to personal loans.
