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Home > Money > Personal Loans Last Updated: Dec 28th 2023

How to apply for a Personal Loan?

Personal Loans are most popular loans these days due to access to such and encouragement from both banks and lending institutions. Understand Interest rates, importance of credit score, typical approval reasons, alternatives and considerations before taking a loan.

Home Loan vs Personal Loan


Personal loan is an unsecured loan that an individual can borrow from a bank or financial institution if there is urgent need for funds. Once you submit the application to the lender, the lender verifies and approves it based on your income, credit rating and purpose.

Proof of identity, residence and income is mandatory for the salaried individuals to apply for the personal loan. Once, the loan amount is disbursed into the bank account, the borrower will need to repay the lender via EMIs over the course of the loan repayment tenure.

Compare Interest Rates

One of the most important factor to consider before applying for a personal loan is the annual interest rate %. The indicative rate of interest of the leading banks / financial institutions as on Feb 2020 are as follows.

Financial InstitutionRate of InterestProcessing Fee (percentage of loan amount + GST)TenureMaximum amount in ₹
HDFC Bank10.75 – 21.50 %Upto 2.50%1-5 years40 lakhs
ICICI Bank10.99 – 16.25%0.75% onwards (Min ₹999)1-5 years20 lakhs
Citibank10.50 – 17.99%0.50% – 3.00% One-time fee1 – 5 years30 lakhs
Kotak Mahindra Bank10.50 – 16.99%Up to 2.50% One-time fee1 – 5 years25 lakhs
Tata Capital11.25 – 14.49 %Up to 2.50% One-time fee1 – 6 years20 lakhs
Aditya Birla Capital11.00 – 13.75 %1.00% One-time fee1 – 5 years30 lakhs
IDFC First Bank15.00 – 22.00 %Up to 3.50% One-time fee1 – 5 years25 lakhs
SBI10.60 – 13.10%Varies from 0.5 – 1.5 %1 – 7 years20 lakhs
Standard Chartered11.00 – 19.20%2.25 % for online application1 – 5 years30 lakhs
PNB8.95 – 11.80%1.8 %1 – 7 years10 lakhs
IndusInd11.00 – 16.75 %Nil1 – 5 years25 lakhs

Credit Score

The credit score of the applicant determines the creditworthiness and allows the lender to evaluate the application of the potential borrower. It is a reflection of the applicants’ credit history and how responsibly dealt with credit in the past.

A credit score of 750 and above is considered good enough. The credit score reflects the applicants’ credibility since it takes into account the timely repayment of EMIs, credit utilization, credit inquiries, and existing debt. A good credit score shows your lender that you are financially stable and responsible with credit.

However, the credit score is not the only criteria when it comes to qualifying for a loan and getting approval on the application. Factors such as salary, existing debt, employer, current residence etc. of the applicant also plays a role.

Refer Journey towards Higher Credit Score to know more on how to build a solid credit history?

What Reasons to consider?

Personal loans are traditionally opted for debt consolidation, home repairs, study loan, emergency and unforeseen medical expenses, vehicle refinancing and other personal purchases or even for a vacation. However, with the COVID-19 scenario, the reasons could vary to other emergency requirements and most of the leading Indian banks are offering COVID-19 personal loans.

The applicant can apply for a personal loan online through the bank's official website. Applying online is recommended since the process is fast, hassle-free and allows the applicant to maintain the social distancing norm laid down by the Government of India.

The interest rates offered will vary from bank to bank and hence it is recommended to compare various personal loans.

Backup Plan

It is important to introspect and create a contingency plan to tackle any financial crisis. One has to re-evaluate financial standing and capacity to service (pay-back) debts along with meeting necessary expenses. Investments could be redirected to liquid assets to avoid sudden cash crunch and the risk of being a financial defaulter along with curtailing unnecessary expenditure on luxury. Activities which can be deferred, personal loans should be avoided for the same.


The loan amount, credit score, income and overall creditworthiness of the applicant will impact the interest rate. The applicant should do his/her research and find competitive rates, avoid any hidden fees and estimate monthly payments. When you take a personal loan to pay off credit cards or to have a great wedding or exotic vacation, you are borrowing money that must be repaid with interest on top, so earlier you repay better for you.

Personal loans are a great way to consolidate debt, make major purchases or tackle a medical emergency or compelling situation but one should always utilize this financial resource responsibly to avoid getting into a debt trap.

Disclaimer: This article provides an overview and general guidance, not exhaustive for brevity. Please refer Income Tax Act, GST Act, Companies Act and other tax compliance acts, Rules, and Notifications for details.