Personal Loans

A personal loan is a loan that can be availed for any purpose. It can either be secured against an asset or can be availed without keeping any collateral, referred to as an unsecured loan. The applicant is offered funds based on his/her credit history and risk profiling. Personal Loans are instantly approved and are usually more expensive than other forms of loans.

PurposeMedical Emergencies,
Higher Studies,
Home Renovation,
Debt Consolidation,
Purchase of Costly Consumer Products, etc.
Loan SizeRs. 10,000 to Rs. 50 Lacs
Tenure6 Months to 96 Months
Interest Rates9.60% to 26%
Lock-in Period6 Months to 12 Months
ChargesProcessing Fee: 0.25% to up to 7%

Foreclosure: 0% to 6% of the Principal Outstanding Amount

Part-Payment: 0% to 6% of the Prepaid Amount

Default Charges: 2% per month


  1. Personal Loan Amount
  2. Personal Loan Tenure
  3. Personal Loan Rates of Interest
  4. Lock-in Period for Personal Loan
  5. Charges for Personal Loan
  6. Eligibility Criteria for Personal Loan
  7. Assets & Liabilities for Personal Loans
  8. Documentation for Personal Loans
  9. Types of Personal Loans

Personal Loan Size

The size of the loan one can get mainly depends upon some of the crucial eligibility factors, such as monthly/annual income of the borrower, current age, the credit risk profile of the borrower, residential stability, total work experience, and growth in the profession, nature of the job, stability at the current organization, tenure and the spending behavior of the borrower. The banks/FIs analyze these factors to determine how much amount they can lend to a specific borrower without being at any credit risk.

Depending upon the credit risk profiling and their eligibility, a borrower may get the approval to avail the funds as low as Rs. 10,000 to as high as Rs. 50 Lacs from banks/FIs. However, there are very few lenders who offer loan amounts as low as Rs. 1,000 to Rs. 5,000 such as Indiabulls and Home Credit. These lenders usually target the kind of borrowers who do not have any credit history; hence, are unable to avail the funds from the banks/FIs.

The minimum and maximum loan amount a borrower can avail varies from bank to bank and also depends upon the loan schemes a bank/FI has to offer.

Personal Loan Tenure

Personal Loan Tenure plays an important part in determining how much loan amount a borrower can get and also defines the size of your monthly repayments. Moreover, it plays an important role in deciding the overall cost of a personal loan since banks/FIs tend to offer a high-interest rate for short-term loans. Most of these banks and FIs offer personal loans with tenures ranging between 12 months to a maximum of 60 months but may differ from bank to bank as per the loan scheme.

However, there are very few of the lenders available who offer tenure as short as 6 months or as high as 96 months. For instance, HSBC Bank offers a short repayment period of around 6 months to all kinds of borrowers whereas Bajaj Finserv, on the other hand, offers a repayment period as long as 96 months to doctors. It is to be noted here that most banks/FIs tend to offer short repayment periods for personal loans availed for purchasing consumer products whereas longer tenure if the borrower is self-employed.

Personal Loan Interest Rates

Interest rate is one of the main components of personal loan EMIs and defines how costly the personal loan would be for the borrower’s pocket. Interest rate is of two types in nature, Fixed Rate of Interest and Floating Rate of Interest and is calculated based on a few factors like loan amount and tenure.

In the case of Fixed Interest rates, the banks/FIs charge a fixed percentage on the principal outstanding amount which doesn’t change throughout the loan tenure; Hence, the EMIs remain the same over the entire period of the loan. Whereas, in the case of Floating Interest rate, the banks/FIs charge a variable rate of interest which varies according to the conditions of the market and may or may not be higher than fixed rates from time to time; Hence, the EMIs can go high or low depending upon the current floating rates as defined by the banks periodically.

Despite being different, both Fixed interest rates and Floating interest rates are linked to the MCLR Rates as calculated by the banks/FIs from time to time. However, the RBI defines a minimum limit to the MCLR rate annually which every bank has to follow when deciding the interest rate either for fixed-rate personal loans or floating rate personal loans.

The minimum interest rate offered by any bank is 9.60% as per the current interest rate offerings in the Indian banking industry. It is noticed that the banks/FIs tend to offer slightly lower interest rates to pensioners as compared to salaried and self-employed borrowers. Moreover, the interest rates applicable on unsecured personal loans are always higher than secured personal loans. It can also vary according to the facility one is availing on their existing personal loan, such as interest rate is usually 1% lower in case of personal loan balance transfer than the interest rate applicable on the existing personal loan, and up to 1% higher in case of personal loan top-ups.

Concession on Personal Loan Interest Rates

Most of the banks and financial institutions these days, offer a concession on interest rates to women borrowers and senior citizens, and sometimes to the borrowers who have an existing relationship with the bank/FI, availing personal loan above a certain loan amount or have a specific professional qualification. This concession varies from bank to bank and usually ranges between 25 bps to 50 bps, i.e. 0.25% to 0.50% on the existing rate of interest.

Lock-in Period

The lock-in period on a personal loan is what defines how soon the borrower can close the loan account or start paying a larger sum against the remaining loan amount, transfer the personal loan outstanding balance to another bank, or avail of additional funds.

Prepayment (Foreclosure/Part-Payment)

In the case of a prepayment facility, either foreclosure or part-payment, the minimum lock-in period that a borrower has to serve is 12 months after the disbursal of the loan amount. Only very few banks/FIs allow their customers to prepay their loan earlier than this period such as Capital First offer a lock-in period of only 6 months and Bajaj Finserv allows its customer to prepay as soon as 1 month after the disbursal. However, the option of foreclosure / part-payment is subject to the chosen bank and may or may not be offered by the bank.

Balance Transfer

In the case of balance transfer on a personal loan, a borrower has to serve a minimum of 6 months of regular repayment period before he/she can opt for a balance transfer facility.


As for the top-up personal loan is concerned, most of the banks offer a minimum lock-in period of 12 months, and only after serving this period, the borrower is eligible to avail additional funds over their existing personal loan. However, only a couple of banks/FIs offer lock-in periods lower than this, such as Kotak Mahindra Bank allows its loan borrowers to avail top-up loan facility as soon as 9 months after the disbursal of the loan.

It is important to know that if a borrower tends to make defaults usually or have a high credit risk profile, the bank/FI may reject his/her application to opt for any of the facilities mentioned above even after serving the applicable lock-in period.

Personal Loan Charges

When it comes to the charges applicable on a personal loan, there are various other types of charges apart from the applicable interest rate a borrower has to pay according to the situation such as processing fee, foreclosure/pre-closure charges, part-payment charges, and late payment fee, etc.

Processing Fee

The processing fee is the third important component of a personal loan, after the principal outstanding amount and interest rate. The banks/FIs charge processing fee in respect of various expenses they have to make in order to approve a borrower such as manpower used for verification of the borrower, checking their credit profile, and also the cost they have to pay in order to verify as well as maintain the documentation for the loan.

However, in some cases, banks may not levy processing charges on the borrower such as many banks/FIs offer zero processing fee offers to the senior citizens and pensioners. The bank or financial institution may ask the borrower to pay processing charges upfront by cheque at the time of approval. In case of rejection, the bank may deny to repay the processing fee at all or pay a portion of the processing fee back to the borrower, depending upon their guidelines.

Or, some banks/FIs abstract the processing charges from the sanctioned loan amount at the time of disbursal. In this case, the borrower doesn’t need to offer any amount as an upfront fee and secured any loss in terms of processing charges on the rejection of the loan.

The processing charges levied by the banks usually range between 0.25% to 3% of the sanctioned loan amount. However, few banks/FIs charge processing fees as high as up to 6.50% of the loan amount. It is important to know that processing charges tend to be higher in case of availing a personal loan from a private lender.

Foreclosure Charges

The foreclosure charges applicable are levied on the borrower if he/she wants to pay off the personal loan in one go, after serving the lock-in period. These charges are paid in respect of the adjustments a bank/fi has to make such as a change in loan documentation but mainly against the loss in interest rate amount the bank has to bear due to the closure of the loan earlier than the term decided. The foreclosure charges may be negotiable when it comes to Floating Rate Personal Loans but tend to be higher in the case of Fixed Rate Personal Loans.

The foreclosure charges levied by the banks/fi depend upon how much tenure the borrower has served, such as if the foreclosure is made between 12 months to 24 months, 24 months to 36 months, and so on. As for the applicable charges are concerned, it usually ranges between 1% of the principal outstanding amount to 7% of the principal outstanding amount, depending upon the tenure served after the disbursal. However, few banks/FI also offer zero foreclosure fees depending upon the nature of the job such as Bajaj Finserv offers zero foreclosure charges to self-employed individuals, salaried engineers, and chartered accountants who are foreclosing their personal loan after 1 month of disbursal.

Part-Closure Charges

Similar to the foreclosure charges, the part-closure charges are levied on the borrower in respect of the interest loss the bank has to bear and change in the documentation. The part-closure charges levied by the banks/FIs are negotiable in the case of floating-rate personal loans but are usually higher in the case of fixed-rate personal loans.

The part-payment fee also ranges from 1% of the prepaid amount to up to 5%. However, some of the banks offer zero part-payment charges depending upon the remaining tenure as well as the nature of the borrower’s job i.e. whether he/she is salaried, self-employed, or a pensioner.

Default Charges

Default charges or also known as “Penal Interest” and generally known as “Late Payment Charges” are levied by the banks on the borrower, when the borrower fails to pay the monthly installment on time of payment due date. The banks/FIs charge an additional interest of 2% per month (24% per annum) as a penalty for making default on a personal loan. Moreover, very few banks/FIs charge a flat amount in addition to the penal interest such as Standard Chartered Bank levies a flat fee of Rs. 495 along with 2% penal interest per month. Exceptionally, only a couple of banks/FI does not charge any cost against the due payment like Citibank.

Personal Loan Eligibility Criteria

Personal Loan Eligibility for Salaried
Personal Loan Eligibility Criteria for Employees

Minimum Income

The income criteria majorly define how much loan amount one can get. The banks/FIs usually have a preset limit to the minimum income a borrower needs to have to be eligible to avail the personal loan from the bank/FI.

The minimum income/salary criteria defined by the banks/FIs varies according to the working profile of the borrower, category of the current organization, and especially based upon the current location of the borrower. The salaried borrowers living in Tier-I cities must be earning a minimum salary of Rs. 18,000 to Rs. 25,000 per month and minimum Rs. 12,000 to Rs. 18,000 for ones living in Tier-II cities. Whereas, the monthly salary criteria is 25% to 40% higher for the employees of companies/organizations categorized within “Category E” than the companies/organization in other categories.

Based on the current salary or income the borrower has along with the existing obligations, the bank/FI determines the FOIR (Fixed Obligations to Income Ratio) which is directly linked to the maximum loan amount one can avail. The FOIR is the difference between all the existing obligations including the proposed EMIs and the net income of the borrower.


The age of the borrower at the time of loan application is what tells if the borrower would be eligible for the personal loan or not. The banks/FIs have set the minimum age criteria depending upon the working profile of the borrower, such as a salaried borrower should be at least 21 years old at the time of loan application, whereas self-employed applicants should be between 23 years to 25 years to be eligible for the personal loan. However, few banks/FIs like co-operative banks have comparatively lower criteria for minimum age which is at least 18 years at the time of loan application, especially in the case of non-incomers like housewives and students.

As for the maximum age is concerned, borrowers should not be more than 60 years old at the time of loan application if salaried whereas the self-employed borrower cannot be more than 65 years. However, few banks/FIs have slightly higher age criteria when it comes to the maximum age limit. The maximum age specifically matters in the case of a salaried borrower since banks/FIs avoid offering personal loans to borrowers who are close to the retirement age.

Typical Employment & Income Stability

When it comes to salaried borrowers, the total number of years of employment one has served in his/her current organization, do typically impacts the loan eligibility in terms of stability with their current organizations. The frequent changes in employment reflect the instability of the borrower in his/her current job, which usually tells the banks/financial institutions the fluctuations a certain borrower may have in their current salary and fewer opportunities for the growth of salary/income at the same working profile.

The frequent changes in employment also impact the professional stability of the borrower and tell the banks/FIs that the borrower is unable to find peace in work; Hence, there can be a point that he/she will switch to a different kind of profession/industry.

Occupation Type & Growth Prospects

The nature of the profession one is involved in, shows the banks/FIs how stable they would be in their current industry, be it salaried or self-employed. The changes in profession/industry reflect that the borrower may lack the peace of mind he/she may expect from his/her profession and is most likely to have different earning scales due to the difference like the occupation.

Based on the occupation type, the banks/FIs can also assume how likely the borrower has a chance of earning a higher income/salary soon.

Typical Residential Status

The residential status of a borrower typically reflects how stable the borrower is in his/her current location. The frequent changes in residential status reflect that the borrower is most likely to not hold any assets especially in terms of property.

Assets & Liabilities for Personal Loans

Credit Score

A credit score is one of the primary factors which affect the eligibility for your loan. It reflects the credit risk profile of a borrower and ranges between 300 to 900 in increasing order. Depending upon what credit score a borrower holds at the time of loan application, the bank/FI decides whether the borrower should be offered the requested loan amount, lesser loan amount, or should be rejected. The components that affect your credit score directly, include the lending behavior of the borrower, spending against liabilities like utility and electricity bills as well as the lending pattern and scale of the borrower.

Within the range between 300 to 900, a credit score of 750 points is considered good for any kind of lending. However, the higher the credit score one has, the higher the chances of being approved for the desired loan amount he/she has. Although, private lenders sometimes lend to borrowers with a credit score as low as 650 as long as the borrower can provide some security.

Number of Dependents

The number of dependants has indirectly affected personal loan eligibility. The more dependants a borrower has, the more it reflects the banks/FIs that the borrower has comparatively lower savings than one who has less number of dependants. Even, in some cases, banks/FIs deny lending to borrowers who are living in an undivided family due to the chance of a high number of dependants.

Personal Loans Documentation

For Salaried Applicants:

  • Loan Application with Photographs
  • Proof for Identity & Residence
  • Bank Statements of last 6 months
  • Salary Slips/Certificate for last 3 months
  • Processing Fee Cheque (In case of upfront)
  • Latest Form 16 / ITR
  • Documents for Existing Obligations

For Self-Employed Professionals:

  • Loan Application with Photographs
  • Proof of highest Educational Qualification
  • Proof for Identity & Residence
  • ITR for last 2 years
  • Bank Statements of last 6 months
  • Audited Balance Sheet with Profit & Loss A/C for Last 3 Years as certified by CA.
  • Documents for Existing Obligations

For Self-Employed Businessman:

  • Loan Application with Photographs
  • Certificate of Existence of the Business
  • Copy of Bank Statements in the name of Business
  • Proof for Identity & Residence
  • ITR in the name of Business for last 2 years
  • Audited Balance Sheet with Profit & Loss A/C for Last 3 Years as certified by CA.
  • Documents for Existing Obligations

For NRIs:

  • Loan Application with Photographs
  • Proof of highest Educational Qualification
  • Proof for Identity & Residence
  • Copy of VISA
  • Proof of stability of job/business
  • Proof of Income
  • Documents for Local Co-borrower

For Pensioners:

  • Copy of Pension Account Documents
  • Loan Application with Photographs
  • Proof of Identity & Residence
  • Bank Statements of last 6 months

For Co-Applicants:

  • Photographs
  • Proof for Identity
  • Proof of Legal Existence along with Work/Office Address
  • Signature Verification Proof
  • Proof of Income
  • Bank Statements of last 6 months

For Personal Loans Against Fixed Deposit:

  • Proof of the deposit in the same bank
  • Documents showing the total value of the deposit

For Personal Loans Against NSC/KVP/RBI Bonds/Mutual Funds:

  • Proof of the security value
  • Copy of documents of security

For Personal Loans Against LIC Policy:

  • Proof of the surrender value of the policy
  • Copy of the policy

Types of Personal Loans

Unsecured Personal Loans

Unsecured loans are the most popular and demanding types of personal loans since the borrower doesn’t need to provide any collateral security in order to avail the funds. Personal loans are mostly considered to be unsecured personal loans. Since there is no requirement of security, the eligibility criteria for unsecured personal loans is comparatively higher than secured personal loans and banks/FIs are at direct risk when it comes to the recovery of the loan amount. However, the banks/FIs can take legal action against you. Thus, it becomes more complicated for lenders and has more chances of rejection of the loan application.

Approval of an unsecured personal loan typically depends upon the creditworthiness of the borrower. The borrower may get rejected even if they have a high income but a bad credit score.  A popular type of unsecured personal loan is a credit card where the cardholder is given a preset credit limit and has to pay the used amount or a fixed portion of it by the payment due date. Failing to do directly impacts the credit score and repayment history of the cardholder.

The interest rate for unsecured personal loans is usually higher than secured personal loans and tends to increase upwardly against the lower loan amount. Unsecured personal loans are most suitable for borrowers who hold good or above-average credit scores and have stable and growing income/salary but either do not have any security to offer or don’t want to put their assets to risk.

Secured Personal Loans

Secured personal loans are the kind of personal loans where the borrower provides collateral security. The types of security which are easily accepted by the banks/FIs include fixed deposits, RBI Bonds, LIC Policies, NSC (National Security Certificate), KVP (Kisan Vikas Patra), mortgage of property such as agricultural land or plots and gold jewelry, etc.

In the case of secured loans, the banks/FIs are entitled to liquidate the security if the borrower fails to pay the monthly installments after 90 days from the payment due date as per the loan agreement signed by the borrower at the time of loan sanction. Hence, banks are usually at low risk and the chances of approval are higher as compared to unsecured loans.

The interest rates on secured personal loans are usually lower than an unsecured personal loan and even in the case of secured personal loans against fixed deposits, the interest rates are just 1% higher than the interest rates borrower earns on the deposit amount.

The secured personal loans are most suitable for borrowers who either have bad or zero credit scores. Or, if the borrower is a non-incomer / senior citizen since the lenders don’t necessarily require any proof of income. Some of the popular types of secured personal loans are –

  • Gold Loans
  • Mortgage Loans
  • Loans against Insurance Policies
  • Loans against Shares / Mutual Funds, and
  • Loans against Deposits

Other Types of Personal Loans

Payday Loan

A payday loan is a type of unsecured personal loan, sometimes also known as “Salary Loans”, where a salaried borrower can avail an amount smaller or equal to their current monthly payment from the lender till he/she receives his/her next salary or usually 30 days period. Hence, it tends to be short in terms of tenure. These kinds of loans are most likely to have high-interest rates as compared to the regular unsecured personal loans offered by the banks/private lenders, but most suitable for borrowers who have a very bad credit score or no credit history at all. The agencies which offer payday loans are usually small in size, as compared to banks/financial institutions but quickly growing due to the high number of requirements.

In terms of documentation required to avail the funds, payday loans are much easier to avail since the borrower doesn’t need to go through any typical documentation process and can simply apply by providing his/her contact number along with bank account documents, latest salary slips, an identity proof number such as Aadhar / PAN Card, etc and Employee ID Card which can be uploaded in the PDF format through the app.

The borrower can simply be approved on the basis of the current income and the bank account and receive the funds almost instantly in his/her bank account. A borrower can simply avail the funds anywhere anytime by simply applying online for the loans using their mobile phones. Unlike regular unsecured personal loans which have monthly installments, in the case of payday loans, the borrower has to offer a post-dated cheque so the borrower can withdraw the money as soon as the funds are available.

The typical loan amount range in the case of salary loans can be between Rs. 5,000 to up to Rs. 1 Lac. Whereas the eligibility criteria for these kinds of loans are as follows –

  • Age: Minimum 21 Years to Maximum 58 Years.
  • Work Experience: Minimum 1 Year
  • Salary: Minimum Rs. 20,000 per month

Line of Credit

The Line of Credit is another type of unsecured personal loan where the borrower is assigned a credit limit by the lender which he/she can utilize as per the requirements. However, unlike the salary loans, the borrower has the option to repay the used amount in monthly EMIs just like regular personal loans. Although the borrower only pays interest rate only on the used amount from the assigned credit limit, the applicable interest rates are usually higher as compared to regular unsecured personal loans. Moreover, similar to salary loans, the borrower doesn’t need to have a credit score in case of the line of credit.

The typical size of the line of credit offered by a lender ranges between Rs. 10,000 to Rs. 1 Lac where the minimum amount the borrower can withdraw at a time cannot be less than Rs. 5,000. Whereas, the repayment period can be a minimum of 3 months or above, subject to a maximum of 12 months. In the case of the line of credit, the lender collects the repayment by Auto debit or NACH facility. Hence, the borrower must provide the authority to the lender for the same at the time of application and essential for approval. Or, the borrower can also repay using the net banking or debit card. Similar to regular personal loans, the borrowers are given the facility to prepay the amount and attract the prepayment charges ranging around 2.5%. Whereas the applicable interest rates range between 1.5% to 2.5% per month in addition to a one-time processing fee of up to Rs. 500. Additionally, an act of default attracts a fee of up to Rs. 500 in case of auto-debit and 2% to 4% of additional interest along with charges of at least Rs. 100 against bounce EMI.

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