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A personal loan is a type of unsecured loan offered by a banking establishment or an NBFC (Nonbanking Financial Company) to an individual borrower, based on his/her credit history, employment history, monthly income, repayment capacity and other important criteria. In most cases, a personal loan is available to both salaried and self-employed individuals as long as they meet the eligibility criteria laid out by the lender. It is obvious that when you start thinking about taking a personal loan, you will be faced with many questions such as the interest rate charged on this loan type, its tenure, repayment time period, charges involved etc. Below we have provided a detailed section on frequently asked questions related to personal loans. Hope it helps resolving any query you may have regarding this loan type.

Personal Loan Charges

Yes, the banks and Nonbanking Financial Companies (NBFCs) might charge you an additional non-refundable fee (apart from the interest), at the time of applying for a personal loan. This is known as processing fees, and it usually is 1% to 2% of the principal loan amount. The purpose of charging this fee is to cover any paperwork required as a part of processing of the personal loan application. However, this charge might be waived by the lender if you have been associated with it for a long time, or for other reasons such as an ongoing promotion.

Different banking establishments and NBFCs might charge different interest rates on their personal loan offers. Majority of the banks have their own unique mechanisms based on which they calculate these rates. The personal loan interest rates of these institutions might vary anywhere from 10% to 19% depending upon various factors, including the loan amount, tenure and how well do you meet the eligibility criteria.

In the event that you decide to repay the entire amount or a part of your personal loan before the completion of its tenure, you might be charged an additional fee by the lender, commonly referred to as foreclosure/prepayment charge. This penalty or charge is normally between 1% and 2% of the outstanding principal amount, however, you must get in touch with the lender or refer to the loan documents to know the exact figure. Some banks and NBFCs might even charge a higher percentage on personal loan foreclosures/prepayments.

If you have an already running personal loan with a bank or an NBFC, a different lender might allow you to transfer the outstanding balance on that personal loan to them. The new lender will pay off the entire outstanding balance and create a new personal loan with itself, for you. Once the balance transfer is complete, you will owe the transferred amount to the new lender, at the agreed interest rate. Often, the new interest rate is lower than the earlier one. However, there might be some charges associated with the balance transfer process. For instance, you might need to cough up some prepayment fee on the foreclosure of your previous personal loan and the new lender might also charge a nominal processing fee to complete the balance transfer process.

Personal Loan Eligibility

The quantum of your personal loan will depend upon your current income, employment status, credit score, loan tenure and various other factors. The lender will ask you if you’re a self-employed person or a salaried individual. The lenders usually ensure that the personal loan EMI amount doesn’t exceed 40% to 50% of your monthly income. Your credit card dues and/or already running loans will also be taken into consideration.

The procedure of availing a personal loan is fairly simple. You can check out all the personal loan offers available to you based on your eligibility criteria, on our website, and then go with any of the lender/s that you like. However, the loan approval is at the sole discretion of the sanctioning officer who makes his/her decision based on the criteria laid out by the corresponding bank or NBFC. The complete process can take anywhere from 2 days to 2 weeks. Once all the documents have been submitted and the verification is completed, the sanctioned loan amount is normally disbursed within 7 working days.

Yes, there is indeed a minimum personal loan amount you are required to borrow from a lending establishment to make it a worthwhile arrangement for it. Although this minimum amount might vary from one lender to the other, most of them set this minimum principal amount limit at INR 30,000. Some lenders might even drop this limit down to INR 10,000 or even less.

As a personal loan is essentially an unsecured loan offered by a bank or a Nonbanking Financial Company (NBFC), no security and/or guarantee that is required for availing it.

Yes, you can apply for a personal loan either singly or jointly with a co-applicant. However, the co-applicant must be an immediate family member such as your mother, father or your spouse. Once you bring a co-applicant in, your personal loan application will get processed factoring in their income as well, putting you in a higher income bracket and making you eligible for a bigger loan amount. However, please remember that if either of you has a poor credit rating, your chances of getting the personal loan approved may get negatively affected.

Personal Loan EMI

Equated Monthly Instalment or EMI is a fixed sum of money which you’d be expected to pay to the lender each month, to repay the Personal Loan. This fixed sum comprises of both the principal repayment amount as well as the interest rate. A home loan’s EMI is calculated by factoring in multiple parameters like the loan amount, the interest rate and the home loan’s tenure. We offer an easy to use and
comprehensive Personal Loan EMI and Repayment Calculator on our website, thus making EMI calculation extremely easy. Using this tool you can alter the loan amount, interest rate and tenure, to take a quick look at the Personal Loan EMI, within a matter of a few seconds. Once you arrive at a reasonable and comfortable EMI depending upon your budget, you can go with the corresponding loan amount and
make your dream home a reality.

Whenever banks and NBFCs sanction Personal Loans for an apartment in a big construction project, the EMI payments don’t usually start right away. In such a scenario, the lender can only charge pre-EMI interest on the disbursed loan amount. A pre-EMI is basically an EMI option wherein you would be required to pay just the interest component of the Personal Loan amount disbursed during the construction phase of the project. This disbursal is usually made in phases and hence the interest is calculated only on the part of the total Personal Loan which has been disbursed so far. The actual EMIs begin only after you get the possession of the house.

Personal Loan Process

Personal loans normally don’t come with any tax benefits, but if you are availing one to make a down payment for a home or for home renovation, you might be eligible for income tax deduction under section 24 of the Income Tax Act. However, please keep in mind that this tax benefit can only be availed on the interest component of the loan and not on the principal amount. In addition, you will be required to submit proper receipts in order to claim such deduction.

Applying for a personal loan on xyz.com is a fairly simple process and involves three stages:

  • Stage 1 – In the first stage, you fill up the details required in the personal loan eligibility calculator, such as the required loan amount, net income per month, existing loan commitments, loan tenure and the required interest rate. Once all these details are entered, you’d be told if you are eligible for the loan amount or not. And if yes, what will be your monthly EMIs. Apart from that, you’d also be informed about the maximum personal loan amount you are eligible for, and at what EMI.
  • Stage 2 – In the second stage, you’d be able to compare various personal loan offers available from different banks and NBFCs, depending upon your eligibility. You can select the most suitable offer as per your requirements.
  • Stage 3 – The last stage involves online submission of the personal loan application and obtaining an instant e-approval of personal loan. Thereafter, someone from our team will get in touch with you to guide you with the remaining process.
    Please also see “What’s the procedure of availing a personal loan?” above.

After your personal loan application is approved by the bank or NBFC, you will either receive an online electronic transfer of the applied-for personal loan amount, into your savings account, or will receive an account payee draft/cheque of the same amount.

Some banks or NBFCs might allow you to avail a top-up on your existing personal loan if you have already paid a certain number of EMIs (9 to 18) on the loan. This facility is usually extended if you have no bounced EMIs/cheques, are in a stable job, have maintained a healthy credit score and meet certain other requirements which might vary from lender to lender. You’d need to get in touch with the bank/NBFC to learn about the exact figures and conditions.

You can choose between a fixed interest rate and a floating interest rate option, provided it is made available by the respective lender. The EMI amount will stay fixed over the tenure of the loan in case of a fixed rate personal loan, and will keep decreasing (following the reducing balance method) in case of a floating rate personal loan. However, the lender might alter the applicable interest rate in floating rate arrangement, depending upon the changes in MCLR rules.

If you have an already existing relationship with the bank or NBFC that you’re planning to take a personal loan from, the lender might offer you a relationship discount as an added benefit. Such pre-existing relationship could be in the form of an already running home loan, a savings/salary account, an active credit card, a locker and/or something else. Such relationship discounts are usually in the form of a waiver of the processing fees, a discount on the interest rate etc.

In the event that you miss any of your scheduled EMI payments and don’t make any of the subsequent EMI payments too, the lending establishment will try to recover the outstanding personal loan amount with the help of recovery agents and settlements. If such attempts also fail and your personal loan account gets marked as ‘default’, it will show up in your credit report, and will adversely impact your creditworthiness, making it very difficult for you to get any credit card or loan in the future.

As a personal loan is essentially an unsecured loan, the lenders need to use all possible parameters to determine your creditworthiness. One of the most significant parameters used by them in this regard is your credit history (which gives shape to your credit score and credit report). There are three major credit reporting agencies in India – CIBIL TransUnion, Experian and Equifax. Each one of these agencies receive regular inputs from various lending establishments and offer credit rating services to help lenders determine the creditworthiness of the prospective borrowers. These credit rating agencies maintain comprehensive records of people’s credit history, including the details of any previous or current loans, as well as credit card bills’ repayment track records. For instance, CIBIL provides something known as your CIBIL score (essentially your credit score), which can range from 300 to 900. In order to comfortably avail a personal loan from any lender in India, it’s important for your CIBIL score to be at least 750. A CIBIL score between 650 and 750 is also considered decent by many lenders.

If you carefully read through your credit report, you will notice terms like closed, default and settlement in it, with reference to your credit cards and present/past loans. The term ‘closed’ in this regard implies that a credit card or loan has been paid off in full and there are no pending dues on it. On the other hand, the term ‘default’ means that you didn’t clear your credit card or loan dues, and were also not
able to come to an agreement with the lender regarding the outstanding amount. The term ‘settlement’ indicates that you came to an agreement with the lender regarding the outstanding amount and paid an agreed percentage of the outstanding dues, to settle the matter. If the dues are settled, the lender won’t pursue you anymore for the balance amount. Lenders are usually open to waiving off 40% of the outstanding dues in the settlement process, however, this option must be used only as a last resort, as it negatively impacts the credit score.

Any prior credit card or loan that shows up as default or settled in your credit report will negatively impact your credit score. As a result you’d be perceived as a risky borrower by the prospective lenders. On the other hand, any credit card or loan that shows up as ‘closed’ in your credit report would imply that you successfully made all the payments, and have no outstanding against them. This can boost up your credit score, increasing your creditworthiness in the eyes of the prospective lenders.

A loan against credit card is usually an offer extended by the card issuer to help you meet your immediate financial needs. A personal loan and a loan against credit card are similar in many ways, especially in terms of the tenure of the loan and the offered interest rates. However, please keep in mind that you can avail a loan against credit card only from a specific card issuing company, but a personal loan can be applied for with any lending establishment.

No, the interest paid on a personal loan is not tax deductible, unless you have taken the personal loan to make a down payment for a house or for carrying out home renovation. In that case, you can claim income tax deduction on the interest component of the personal loan, under section 24 of the Income Tax Act.

In most cases, you are free to use the personal loan amount in any which way you want. So, it can indeed be used towards the down payment of a house.

A personal loan application may be rejected for all kinds of reasons including poor credit history, insufficient income, past payment records, employment status, lack of documents etc. It essentially boils down to proving your creditworthiness to the prospective lender, and the personal loan may be rejected if you are unable to do so.

A personal loan is an unsecured loan because the lender does not ask for any guarantor or collateral such as gold, property etc. for its approval. Such type of loan is usually extended to help people fulfil their immediate financial needs, and is totally based on factors like income, credit history, employment history, age etc.

In case you have a fairly high credit score, indicating a very good repayment track record, not only will you stand a chance to easily get a personal loan from any lender, you might also be able to negotiate a better interest rate and avail other benefits such as a waiver of processing charges, a higher loan amount etc.

Personal Loan Repayment

The typical tenure of a personal loan in India ranges from 12 months to 60 months (1 year to 5 years). In case you are seeking a shorter or longer personal loan tenure, you’d need to check with the lender.

Yes, you can repay the personal loan ahead of schedule, either partly or in full, before the end of its tenure. However, there might be charges involved in making such payments. In case you choose to pay off the personal loan in part, you might be charged a pre-payment penalty ranging from 1% to 2%. This penalty would normally be between 2% and 5% if you pre-close or foreclose the entire outstanding personal loan amount, before the end of its tenure.

You can repay the personal loan through equated monthly instalments (EMIs), which can be paid via an Electronic Clearing Services (ECS) system or through post-dated cheques drawn in favour of the lending establishment.

The minimum and maximum time period provided to repay personal loans in India is 12 months to 60 months (1 year to 5 years). You can even opt for longer or shorter repayment period (tenure) depending upon the flexibility shown by the lender.

Part payment is an amount which is lesser than the full personal loan principal amount, and it is made prior to the loan amount becoming due.

Pre-payment refers to paying off of a part of the personal loan amount before it becoming due as per the EMI schedule. This amount may be equal to or lesser than the total outstanding. Please note, many banks don’t allow borrowers to pre-pay personal loans before a specific number of EMIs are paid.

Pre-closure of a personal loan refers to the complete repayment of the personal loan amount before the end of its tenure.