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What You Should Know About Personal Loans

When it comes to lending, you know the basics. You take out an auto loan to buy a car, a student loan to get an education, a mortgage to buy a house and credit cards to buy everything else.

Personal Loan is an unsecured loan taken by individuals from a bank or a non-banking financial company (NBFC) to meet their personal needs. It is provided on the basis of key criteria such as income level, credit and employment history, repayment capacity, etc

How to choose for choosing a personal loan:

  • 1. Before applying for the personal loan check your credit report
  • 2. Plan your budget beforehand
  • 3. Borrow only the amount you need and not in excess
  • 4. Find out the APR (Annual Percentage Rate) i.e. the interest on the loan
  • 5. Understand all charges associated with the loan such as prepayment penalty etc.
  • 6. Be careful about the risks involved, in case of secured loans
  • Maximum loan duration

    It can be 1 to 5 years or 12 to 60 months. Shorter or longer tenures may be allowed on a case by case basis, but it is rare.

    How much can one borrow?

    It usually depends on your income and varies based on whether you are salaried or self-employed. Usually, the banks restrict the loan amount such that your EMI isn't more than 40-50% of your monthly income. Any existing loans that are being serviced by the applicant are also considered when calculating the personal loan amount. For the self employed, the loan value is determined on the basis of the profit earned as per the most recent acknowledged profit/Loss statement, while taking into account any additional liabilities (such as current loans for business,Home Loan,etc.) that he might have.