Personal Loan
A personal loan is an unsecured (usually) loan you borrow from a bank, NBFC, or fintech lender for personal use — e.g., home repairs, wedding, medical bills, travel, debt consolidation, etc. It’s typically repaid in fixed monthly instalments (EMIs) over a fixed tenure. Because it’s often unsecured (no collateral), rates depend on your credit score, income, and the lender’s policies.
How a personal loan works
Decide the need & amount
Decide why you need the loan and how much you need to borrow.
Check eligibility & compare lenders
Check eligibility criteria (age, income, employment, credit score).
Compare interest rates (annual rate), processing fees, prepayment terms, and customer reviews.
Get a quote / pre-approval
Enter details on lender’s site or branch to get an indicative offer (loan amount, rate, EMI, tenure).
Apply
Submit application online or at branch with documents (ID, address proof, income proof, bank statements, passport-size photos).
Lender verification & sanction
Lender verifies documents, credit history, employment/income. If approved, you receive a sanction letter showing amount, rate, tenure, fees.
Sign documents & disbursal
Sign agreement. Lender deducts processing fee (sometimes upfront) and disburses the loan amount to your bank account.
Repay EMIs monthly
Pay fixed EMIs each month until loan is fully repaid. EMIs include interest + principal portion (interest portion is higher initially).
Prepayment/foreclosure (optional)
You may prepay part or all the loan — check if lender charges a prepayment/foreclosure fee. Prepaying reduces total interest.
Loan closure & NOC
After final EMI, lender issues a closure letter / NOC and updates credit bureaus that loan is paid.
How a personal loan works
Unsecured
no collateral required.
Fixed tenure
months or years (e.g., 12–60 months).
Interest rate
fixed or floating; charged monthly.
EMI payments
principal + interest paid monthly.
Fees
processing fee, late fee, prepayment/foreclosure charges (varies).
Documents typically required
Proof of identity (Aadhaar, PAN, passport, driver’s license)
Address proof (utility bill, Aadhaar, passport)
Income proof (salary slips, Form 16, bank statements)
Employment proof (offer letter, employer details)
Recent bank statements