Personal Loan

You may face a financial crisis anytime. You can borrow from family and friends, but it is not wise to challenge the cordiality of relationships just for money. Why not borrow from banks instead?

What is Personal Loan?

A Personal Loan is a loan sanctioned by a lender, without any security (collateral). So, it is an unsecured loan. Personal loans are sanctioned by banks and Non-banking Financial Companies (NBFCs). You don’t need to state any reasons, while availing personal loans. Personal loan is the best loan to fund financial emergencies. It is a great way to address a financial crisis, as it allows the borrower to avail a loan without any conditions. Personal loans are sanctioned rather quickly. They may be approved as quickly as 24-48 hours, after the borrower submits the loan application. Personal loans are availed on the basis of specific criteria, such as level of income, employment history, credit score and scope for repayment.


Personal Loan Repayment Tenure

Personal Loans have flexible repayment tenure. You can choose repayment tenure which matches your repayment ability. Personal Loans have tenure of 1-5 years. The personal loan tenure determines how easily you can make the repayments.

To choose personal loan tenure decide on:

  • Loan Amount:This is the amount you wish to borrow. Decide personal loan tenure based on the size of the loan. Longer personal loan tenure means lesser monthly repayment amounts. You end up paying more interest over personal loan tenure. Shorter personal loan tenure means higher monthly repayment amounts. You end up paying less interest over the personal loan tenure.
  • Personal Loan Interest:Personal Loan interest rate depends on CIBIL score. If you have a good CIBIL score of 700-750 and above, you get personal loan at low interest rates. If you have a bad CIBIL score, bank charges high personal loan interest rate. A very poor CIBIL score means banks won’t sanction personal loan. If banks offer low personal loan interest rates, opt for shorter personal loan tenure. You can easily manage the personal loan EMIs and you
  • Monthly Budget:If monthly expenses are high and are 50-60% of monthly income, you must opt for longer personal loan tenure to reduce personal loan EMIs. You will end up paying more interest across personal loan tenure. If your salary is hiked or you get a bonus, prepay personal loan tenure. If your salary is hiked or you get a bonus, prepay personal loan to save on interest payments.


APR of Personal Loan

  • APR or Annual Percentage Rate is a reference for all loans including personal loans, credit cards and car loans. APR for personal loan ranges from 11% to 22% a year. The personal loan tenure ranges from 12 months to 60 months.
  • You are offered two kinds of personal loan interest rates. They are fixed rates and variable rates. Banks use risk-based pricing method to fix personal loan interest rates. This helps determine risk in lending based on credit score. If the risk is high, APR is high. If the risk is low, APR is low.
  • Banks check credit score before sanctioning personal loans. They also check income, employment status, loan amount and credit report before sanctioning personal loan.


Personal Loan Charges

Banks offer personal loans at competitive interest rates. Existing customers can enjoy additional discounts on personal loan interest. Opt for personal loan from your bank if possible.

  • Loan processing charges:Banks and NBFCs charge processing fees on personal loans. This is a non-refundable charge which you pay when applying for personal loans.Most banks charge a processing fee of 1-2% on personal loan amount. Personal loans are short tenure loans and processing fees are a sizeable amount. Compare processing charges on personal loans, before short listing the bank.
  • Documentation charges:These are charged for documentation charges on personal loan.
  • Part payment charges:If you part pre-pay personal loans, there are part pre-payment charges. You would have to pay around 2% plus applicable taxes on part pre-payment amount. Some banks charge 1-5% on principal outstanding + GST.



Common charges on personal loan

Banks offer personal loans at competitive interest rates. Existing customers can enjoy additional discounts on personal loan interest. Opt for personal loan from your bank if possible.

  • Payment dishonour charges
  • Duplicate statement charges
  • Cheque swapping charges
  • Duplicate no dues certificate
  • Duplicate amortization schedule charges
  • Loan re-booking charges
  • Loan cancellation charges
  • Legal charges
  • Stamp Duty
  • CIBIL Report

Amortization Schedule

Amortization means repaying debt through fixed payment over a specified tenure. An amortization schedule is a detailed table of recurring loan payments which show the principal component and interest component in the personal loan EMIs. Personal Loan EMIs are of the same amount. Earlier instalments comprise of higher interest and lesser principal. As each instalments passes, proportion of interest in the EMI reduces and the principal portion increases.