Compare and Apply for Personal Loans

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Personal Loan
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Personal Loan is a short to medium term unsecured loan, which does not require any collateral/security for disbursal. They are generally disbursed in a few hours to a few days with minimal or no paper work at all. A key feature of personal loan is its flexible end-use. Thus, this unsecured loan can be used to meet a variety of needs ranging from emergency medical expenses to planned expenditures such as home renovation, wedding, etc.

A personal loan as the name suggests is provided to individuals and not businesses. Most banks and NBFCs (Non-Banking Financial Companies) offer personal loans to both salaried and self-employed individuals/professionals. The eligibility criteria for a personal loan vary slightly depending on the type of applicant. Following are some of the key personal loan eligibility factors that need to be kept in mind*:

Particulars

Salaried

Self-Employed

Age

21 - 60 years

21 - 68 years

Minimum Income

Rs. 15,000 per month

Rs. 5 lakh per year (gross)

Employment stability

Total experience- Minimum 2 years

Experience in the current organization- Minimum 1 year

Minimum 2 years in current business

*The personal loan eligibility criteria mentioned above are generic in nature and actual eligibility factors will differ from one lender to another.

Personal loans are unsecured credit with flexible end-use that typically have a tenure of 12 months to 60 months. If a shorter tenure is chosen, individual EMI amounts are higher, while a longer tenure results in lower individual EMIs. The following are the key features of a personal loan:     

 

Personal Loan Features
 collateral Personal Loan

No Collateral/Security Required: You don’t need to provide any collateral such as house or car to avail a personal loan. The loan is approved only on the basis of your creditworthiness, which depends on your credit score, income, repayment history, employer reputation, etc.

 Flexible End use

Flexible End Use: Unlike a car loan or home loan, personal loans can be used for multiple purposes, such as to meet expenses of a medical emergency, travel, house renovation, debt consolidation, etc.

 Flexible Tenure

Flexible Tenure: Personal Loans come with flexible tenure usually ranging from 12 months to 60 months.

 Minimal Documentation

Minimal Documentation: You can apply for a personal loan online and even offline with minimal documentation. Key documents that lenders generally need the applicant to provide include a proof of identity, a proof of address and a proof of income.

 Quick Disbursal

Quick Disbursal: Personal loan disbursal can happen within a period as short as a few hours, once the application is approved. Turnaround times can also be as short as a few minutes, if you are able to avail a pre-approved loan offer.  

 Flexible Loan Amount

Flexible Loan Amount: The eligible personal loan amount is based on an individual’s repayment history, monthly income, age, profession, employer reputation and other such factors. Lenders offer personal loans of amount as low as Rs. 10,000 to as high as Rs. 40 lakh.

 

 

 

Personal loan interest rates differ from one bank to another. The rates are also affected by application based factors, such as credit score of the applicant, quantum of loan and tenure. 

Interest Rate Comparison

The following is a comparison of the personal loan interest rates of some leading banks and NBFCs in India*: 

Bank Name

Interest Rate

State Bank of India

10.50% onwards

HDFC Bank

10.75% onwards

Punjab National Bank

12% onwards

Citibank

10.50% onwards

Bajaj Finserv

12.99% onwards

ICICI Bank

11.25% onwards

Tata Capital

10.99% onwards

*Updated as of January 2019, rates subject to periodic change.  

Factors Affecting Personal Loan Interest Rate

  • Credit Score: It is a 3-digit number between 300 and 900 which is based on an individual’s financial health and repayment ability. Higher your credit score, higher are the chances of getting a personal loan and being offered a lower rate in interest.

Click here to check your Credit Score using Paisabazaar tool for FREE.

  • Loan Amount: Some lenders charge a higher interest rate if the applicant is borrowing a higher loan amount. This is due to the perceived higher risk of default as a higher loan amount typically translates to a higher EMI payout.
  • Loan Tenure: Some lenders charge a higher or lower interest rest for a longer tenure personal loan as compared to the same loan for a shorter tenure. Such variation typically depends on the bank’s internal criteria.
  • Repayment Capacity: In some cases, personal loan borrowers may be charged a higher rate of interest in case they have high existing debt. This is because a higher fixed obligation typically increases the risk of default by the lender.

How to Calculate Total Cumulative Interest

The annual interest on a loan is calculated using the formula:

I = P x (R/100)

Where, I = Interest payable, P = Principal (loan outstanding) and R = Rate of Interest (annual percentage rate)

While the above formula can be used as in case of a personal loan with 1 year tenure, multi-year loan may feature different principal in successive years as the loan is repaid. Subsequently, the different interest amount for each year has to be added to calculate total cumulative interest of a personal loan. To eliminate the need of making such complicated calculations, it is advisable to use an EMI calculator which instantly provides you with details such as the total interest payable on your home loan.   

Tips to get a low PL Interest Rate

Typically, interest rate applicable to a personal loan is lower if the lender perceives you to be financial responsible. The following are some ways you may be able to get a low interest rate for your personal loan:

  • Maintain a high credit score and clean credit history
  • Ensure you have minimal outstanding debt i.e. credit utilization ratio of 30% or less
  • Apply for personal loan with a lender with whom you have a prior relationship
  • Opt for a secured personal loan such as loan against shares, NSC, KVP, LIC, etc.

While the above tips are a good starting point to get a lower interest payout for your loan, a low interest rate is not completely assured as there are multiple factors that impact loan interest rate. 

Ways to decrease total interest payout

While it may not be possible to get the lowest rate of interest for your personal loan, there are 3 ways you can decrease the total interest payout on your loan:

  • Opting for a shorter tenure – Higher individual EMI but lower overall interest payout
  • Part pre-payment/foreclosure – Decreases the loan principal thus interest payout is lower
  • Opting for a lesser loan amount – Lower loan principal equals lower total interest payout

 

 Methods

Reducing Balance Method

Flat Interest Rate Method

Method of Calculation

EMIs are calculated only on the principal amount outstanding after each prior payment.

EMIs are calculated on the original amount borrowed, i.e. the entire loan principal.

EMI Payout

Individual EMI payouts decrease with each successive EMI payment.

Individual EMI payouts remain unchanged over time.

At present most lenders calculate personal loan interest using the reducing balance method however, the exact method used is specified by the lender in the loan agreement provided to the borrower.   

EMI Payment Comparison of Reducing Balance vs. Flat Rate   

In the following table, we have compared the EMI payable with reducing balance and flat rate methods of interest calculation over various tenures, interest rate and loan amount:

Personal Loan Specifics

EMI for Reducing Balance Method

EMI for Flat Rate Method

Interest savings over loan tenure*

Rs. 50,000 @ 10% for 3 years

Rs. 1,613

Rs. 1,806

Rs. 6,919

Rs. 1 lakh @ 14% for 5 years

Rs. 2,327

Rs. 2,833

Rs. 30,390

Rs. 2 lakh @ 16% for 4 years

Rs. 5,668

Rs. 6,833

Rs. 55,933

Rs. 1.5 lakh @ 15% for 1 year

Rs. 13,539

Rs. 14,375

Rs. 10,035

*The interest savings represent the difference between the lower EMI for the reducing rate method vs. the flat interest rate method over the loan tenure.

Most banks and NBFCs have similar guidelines in respect to the documents required for personal loans. A generic list of such documents has been provided below*:

Documents Required
 Identity Proof

Identity Proof

PAN Card/ Voter’s ID/ Aadhaar Card/ Passport/ Driving License

 Address Proof

Address Proof

Bank Account Statement/ Aadhaar Card/ Lease/ Property purchase Agreement/ Utility Bill (not more than 3 months old)/ Passport/ Driving License

 Income Proof

Income Proof

For Salaried Individuals: Salary Slip/ Bank Account Statement/ Form 16

For Self Employed: Previous Year ITR/ P&L Statement and Balance Sheet/ Bank Account Statement

 Business Proof

Business Proof

Certificate of Practice/ Partnership Deed/ GST Registration and Filing Documents/ MOA & AOA/ Shop Act License

*The actual list of documents required may vary from one lender to another.

It is always a good practice to plan your monthly expenditures in advance to avoid any financial hassle later. Paisabazaar has designed a personal loan EMI calculator, where you just need to enter the loan amount, interest rate and tenure to calculate your EMI instantly. This can help you make an informed decision regarding the loan option that best suits your unique requirements.

To get an idea about how personal loan EMIs are computed, take a look at the table given below:

Loan Amount

Interest Rate

EMI 1 Year Loan Tenure (Rs.)

EMI for 2 Year Loan Tenure (Rs.)

EMI for 3 Year Loan Tenure (Rs.)

EMI for 4 Year Loan Tenure (Rs.)

EMI for 5 Year Loan Tenure (Rs.)

1 lakh

10.50%

8,814

4,637

3,250

2,560

2,149

2 lakh

10.75%

17,653

9,298

6,524

5,144

4,323

3 lakh

10.50%

26,444

13,912

9,750

7,681

6,448

5 lakhs

11.00%

44,190

23,303

16,369

12,922

10,871

10 lakhs

10.50%

88,148

46,376

32,502

25,603

21,493

Why Should I Apply for Personal Loan at Paisabazaar.com

  • Multiple offers, single platform: At Paisabazaar.com, you are saved from the hassle of visiting individual websites/offices of lenders to compare the available personal loan options.
  • See all possible lenders:com showcases all the possible lenders (both banks and NBFCs), who can offer the personal loan without affecting your credit history and credit score.
  • Check eligible loan amount: You can check the loan amount you are eligible for through our platform.
  • Know the chances of loan approval: Paisabazaar.com uses a proprietary algorithm called SmartMatch. Using SmartMatch, prospective lenders are listed as per the chances of approval for your personal loan application.
  • Check personal loan EMI: Use Paisabazaar’s Personal Loan EMI Calculator to know your monthly EMI payout. This feature allows you to plan your finances better.
  • Get a personal loan online: Apply for a personal loan online using Paisabazaar.com to save time as well as money. Additionally, avail our customer service to get an answer to all your concerns with respect to your personal loan application.
  • Instant In-principle e-Approval: Get in-principle e-approval for your personal loan application in a matter of seconds when you apply online through Paisabazaar.com
  • Assured Privacy and Transparency:com is ISO 27001-2013 certified for Information Security Management System. Hence, all the personal loan application details are kept private and safe.

To apply for a personal loan online at Paisabazaar.com, you need to follow these steps after logging on to the website and clicking the “Personal Loan” button on the home page:

Step 1: Enter your personal details such as your occupation type, current city, monthly income, mobile number along with the required loan amount and click “Proceed”.

Step 2. To find the best-suited personal loan offer, enter your company name, work experience, current loan EMI amount (if any) and PAN.

Step 3. A list of personal loan offers from various banks and NBFCs that you are eligible for will be displayed as per the chances of approval. Select the loan offer that best suits your requirements and fill out any additional details that may be required.

Step 4. Get an instant conditional e-Approval from the lender. Furthermore, our team will guide you through the documentation process required for loan processing and disbursal.

In order to apply for a personal loan using the app you need to download and install the Paisabazaar app from the relevant App store. Additionally you need to be logged into your Paisabazaar account. The following is a Step by step Guide to apply for a personal loan using the Paisabazaar App:

Step1. Click the “Personal Loan” tab on the app dashboard.

Step2. Fill out your personal details, such as the nature of your employment, net monthly income, residing city and the desired loan amount. Select the check box to accept the applicable terms and conditions and click “Proceed”.

Step3. In the subsequent page, fill out further details, such as name of your bank, work experience and click “Proceed”.

Step4. A list of the eligible personal loan offers will be displayed arranged according to the chances of approval.

Step5. Select the personal loan offer that best suits your requirement.

Step6. Fill out bank-specific additional details that may be required to submit your loan application online.

The verification process for a personal loan involves the following key steps:

Step 1: Once you have submitted your online application on Paisabazaar.com / Paisabazaar App, your chosen lender receives your online loan application.

Step 2: Subsequently, the lender’s representative will call you to verify application details and arrange for pickup of documents required for your loan application.

Step 3: Once the documents have been collected and successfully verified, the personal loan application is approved.

Step 5: Loan is disbursed once the applicant signs the loan agreement.

Once your personal loan application is approved and the loan has been sanctioned, disbursal occurs in one of 2 ways:

Option1. Direct transfer of funds to a savings/current bank account specified by the applicant

Option2. An account payee cheque/ draft sent to the applicant’s mailing address by post

Currently the 1st option is more commonly used as disbursal is quicker and there is no risk of a cheque/draft getting lost in transit by post.   

The main factors affecting the disbursal limits of personal loans include the following:

  • Income of the applicant – higher income level tends to increase the disbursal amount
  • Current EMI payable – higher EMI payouts typically decrease the disbursal amount
  • Number of dependents – higher number of dependents usually decrease the disbursal amount

The list of factors impacting disbursal limits of personal loans mentioned above is not exhaustive and there may be others that impact the disbursal decision made by lenders. 

Timely EMI payments of your personal loan are essential to ensure that you maintain a clean credit history and good credit score. There are multiple ways you can pay your loan EMI:

  • Standing Instructions – You can use NACH mandate to set up standing instructions
  • Autopay – You can use internet banking to set-up autopay for EMI payment
  • Online Transfer – EMI payments can be made online using NEFT, RTGS, IMPS payments
  • Cheque/Draft – Post-dated cheques (PDC) or drafts can also be used to pay your PL EMI

Do keep in mind that the different EMI payment options mentioned above may or may not be available in case of your lender.     

How to Reduce Your Monthly EMI?

If you are finding it difficult to keep up with your monthly loan repayments, you might be able to negotiate a lower EMI by extending your repayment tenure. You should however bear in mind that in this situation, due to the longer tenure, you will end up paying more interest over the loan tenure.

The alternative is to opt for a personal loan balance transfer. In this case, the principal outstanding of your current loan is transferred to a new lender at a lower rate of interest. As a result of the lower interest rate, your individual EMI payments will decrease.         

The following are a few specific terms related to personal loans that you must know:

  • Personal Loan for Women: It is a special category of personal loan offered to women by several banks and NBFCs. A preferential rate of interest is applicable in such cases to promote and support female entrepreneurs and working women.
  • Personal Loan for Pensioners: It is offered to senior citizens so that they can meet their retirement needs, medical expenses, or plan a trip without any financial constraint.
  • Pre-approved Personal Loan: This is a special category of personal loans, also known as instant personal loans. These are usually offered to existing customers (account holders/credit card holders) of the bank or NBFC. Instant personal loans are characterized by minimal to no documentation and quick disbursal of the loan amount (generally within a few hours). However, the loan amount sanctioned in such quick personal loan offers depend on the applicant’s profile and cannot be changed.
  • Top-up Loan: This is a personal loan issued to a borrower who already has an unpaid personal loan from the current lender. Top-up personal loans are usually available to select PL customers of the NBFC and they often feature an interest rate similar to that of a standard personal loan.
  • Balance Transfer – Balance transfer is the process by which the principal outstanding of an existing loan is transferred to a new lender offering a lower interest rate. This decreases the overall interest payout over the loan tenure.
  • EMI – Equated monthly installments (EMI) are the scheduled monthly payments that a borrower needs to pay over the loan tenure to pay off the amount borrowed along with interest accrued.
  • Partial-Prepayment – In case the borrower decided to repay a loan amount that is greater than the monthly EMI payout, the extra amount is considered to be a partial-prepayment. Such partial prepayment decreases the outstanding loan principal and in effect reduces the total interest outgo for the loan. In such cases, prepayment penalties and related taxes may be applicable.

Apart from interest charges, some additional charges may also be applicable to a personal loan. Some of the most common ones that should be kept in mind are as follows:

  • Processing Fees – This is a fee to cover the administrative charges related to the disbursement of a personal loan. Processing fees are usually between 1% and 3% of the loan amount sanctioned.
  • Prepayment/Foreclosure Charges – When an amount in excess of the standard EMI payment is made, it is counted as pre-payment of a loan. In case an outstanding loan is paid off before the end of its tenure, the process is termed as foreclosure or complete pre-payment. In most cases, lenders charge a fee known as foreclosure charge at the time of making this complete prepayment. Typically prepayment/foreclosure charges range from Nil to 5% of the principal amount prepaid plus applicable taxes on top of the loan principal outstanding.
  • Late Payment Charges – These charges are levied when the borrower is late in making EMI payments. This is typically a fixed charge that borrower will need to pay along with the due amount.
  • Cheque Bounce Charges – In case an EMI payment is missed as the account linked to the post-dated cheque is low on funds or the account has been closed, a cheque bounce charge will be applicable. This is typically applied as a fixed charge of around Rs. 500. 

Q1. Why should I apply for a personal loan?

You should apply for a personal loan because of the following reasons:

  • No collateral needed: A personal loan is an unsecured loan, so you do not any collateral/security to avail a personal loan.
  • Flexible end use: Unlike a car loan or a home loan, a personal loan can be used for various purposes, ranging from medical emergency expenses to home renovation.
  • Minimal documentation: The documentation process to avail a personal loan is far simpler and faster that the process to avail a secured loan.
  • Debt consolidation: You can consolidate multiple loans and/or credit card dues by taking a personal loan. This will not only make debt repayment easier but will also help you to save on interest payout.

Q2. What is the minimum salary required to get a personal loan?

The minimum monthly salary requirement to avail a personal loan varies from lender to lender. However, it generally ranges between Rs. 15,000 and Rs. 25,000 per month.

Q3. What is the best credit score or CIBIL score to get a personal loan?

Credit score is a 3-digit number that ranges between 300 and 900. It serves as a measure of creditworthiness and financial health of an individual. Thus, higher the credit score, greater are the chances of getting a personal loan approved.  Generally, a credit score of 750 and above is considered good. You can improve your credit score by paying credit card bills on time, decreasing your outstanding debt and maintaining old credit card accounts in good standing.

Read more about: CIBIL Score for Personal Loan

Q4. What role do credit history and score play in getting a personal loan?

Your credit history and credit score reflect your handling of credit in the past. Hence, they not only affect the chances of being approved for a personal loan, but often impact the rate of interest too. Higher the credit score, greater are the chances of approval and receiving a lower preferential interest rate.

Q5. Can I get a personal loan being a pensioner, if I have a pension account with one of the leading banks in India?

Yes, you can get a personal loan even as a pensioner, if you have a pension account with one of the leading banks. However, you should ensure that your bank offers personal loans to pensioners and you meet the eligibility criteria as specified by your prospective lender.  

Q6. Can a student apply for a personal loan?

Generally, students are not eligible for a personal loan as a stable source of income and a good credit score are necessary pre-requisites. However, if you have a stable monthly income and fulfill the lender’s other eligibility criteria, you may easily avail a personal loan.

Q7. What is the minimum score to get a personal loan?

It depends on the eligibility criteria set by the lender. Most lenders do not specify a minimum credit score for a personal loan. Some lenders might lend money to applicants with low credit score (less than 750) but the interest rate applicable is usually higher in such cases. 

Q8. Can I get a personal loan if I have a home loan?

Yes, you can apply for a personal loan even if you already have a home loan. However, the chances of getting the loan approved will depend on your repayment capacity, which in turn depends on your monthly income and credit score.

Q9. Can self-employed individuals apply for a personal loan in India?

Yes, self-employed individuals like businessmen, doctors, chartered accountants, etc. can apply for a personal loan in India provided they meet the eligibility criteria. Moreover, some banks and NBFCs provide special personal loan offers for doctors, chartered accountants and businessmen.

Q10. Can I get personal loan without a salary slip?

Yes, you can get a personal loan without providing salary slips. You can submit your bank account statement/ a copy of Form 16/ employee certificate from the employer, etc. as a proof of income to fulfil the eligibility criteria. However, it is always recommended to confirm the list of required documents with the lender as it may vary from one bank to another.

Q11. Can I use a personal loan for marriage purpose?

Yes, you can avail a personal loan to meet marriage related expenditure as personal loans come with flexible end use. Some lenders even provide personal loans specifically named as wedding/ marriage loans.

Q12. Can I take a personal loan from two different banks at the same time?

Yes, you may avail a personal loan from two different lenders at the same time. However it is not advised to do so, as it will not only affect your credit score but will also increase your EMI payout. It will be better to take one personal loan of a larger amount than two personal loans of smaller amounts. This way you can pay lower EMIs for a longer tenure and also improve your credit score. Moreover, you will save upon processing fees and other loan related charges.

Q13. Which is better, a personal loan or a credit card?

Both personal loan and credit card are means of borrowing money. Which one is better depends on the purpose behind borrowing money. If you need to borrow a fixed amount for a finite period of time, go for a personal loan. On the other hand, if you want revolving credit for lifetime, go for a credit card.

Read more aboutCredit Card vs Personal Loan

Q14. Is it good to pay off credit card debt with a personal loan?

Yes, it is often a good idea to pay credit card dues with the help of a personal loan as:

  • It allows you to consolidate the debt associated with multiple credit cards, which in turn will make the repayment process easier.
  • The rate of interest applicable on a personal loan is lower than that applicable to the outstanding balance on a credit card. Thus, taking a personal loan also helps you save on the overall interest cost.

Q15. What is the difference between reducing balance rate and flat interest rate?

In case of reducing balance method, interest is applicable on the outstanding loan balance i.e. on the balance that remains outstanding after getting reduced by the principal amount repaid. As a result, the interest cost keeps decreasing over the loan tenure. On the other hand, flat interest rate is charged on the entire loan balance throughout the loan term. Thus, the interest payable does not decrease over the loan tenure.

Q16. Should I always choose the lowest possible EMI before accepting a personal loan offer?

Low EMI offers are a result of either low interest rate or a long repayment term and sometimes both. Thus before selecting a personal loan offer, you should consider both interest rate and loan tenure. It is possible that the lender offering the lowest EMI is also offering the longest tenure, which in turn may increase your total interest payout. On the other hand, a personal loan offer with a relatively higher EMI but a shorter tenure may actually prove more economical in terms of total interest paid. Thus, you should always calculate your total interest payout and also take into account your repayment capacity before selecting a specific loan offer.

Q1. Which documents are required to apply for a personal loan?

The documents required to avail a personal loan vary from lender to lender. However, most of the banks and NBFCs require a proof of identity, a proof of address and a proof of income.

Q2. How should I choose the best personal loan offer?

With a plethora of personal loan offers available, choosing the best one can be challenging for some people. But worry not and follow the below tips to choose the best personal loan offer:

  • Compare interest rates: Do not go for the first offer that comes your way. Always compare personal loan interest rates offered by different lenders before choosing a deal.
  • Compare other loan fees and charges: Do check the associated loan charges and fees before settling for an offer as they might affect your budget despite a low rate of interest.
  • Check for repayment flexibility: Check for prepayment and part-payment options and the associated charges to better plan your repayment schedule. 
  • Calculate EMI payout beforehand: Before you apply for personal loan, you need to be sure that you will be able to repay the loan on time without any penalties.

Q3. How can I avoid personal loan rejection?

While getting a personal loan application approved completely lies in the hands of the lender, the below steps can be followed to avoid rejection:

  • Carefully check the eligibility criteria set by the bank/NBFC and ensure you meet them.
  • Check for inaccuracies in your credit report as they might affect your credit score and hence your chances of getting a personal loan. Click here to check your credit report with Paisabazaar for free.
  • Reduce your outstanding debt by paying any existing loan installments and credit card dues.
  • Keep your credit utilization ratio below 40%.
  • Avoid multiple loan applications at once.

Must Read: 6 Common Reasons For Personal Loan Rejection

Q4. How can I bargain for a better rate of interest on my personal loan?

You can get a lower rate of interest on your personal loan by following the below tips:

  • Maintain a good credit score as it is suggestive of financial stability and repayment capability. Higher the credit score, greater are the chances of availing a personal loan at a lower rate of interest.
  • Apply for loan at a bank with which you already have a savings account or fixed deposit. Good pre-existing relationship with the lender has a positive impact on your repayment ability, which may help you to get a loan at a lower rate of interest.
  • Banks and NBFCs often release special personal loan offers during festive season. These offers generally have an attractive rate of interest. Thus, applying for a personal loan during the festive season may help you get a loan at a lower rate of interest.

Q5. What is the impact of GST on personal loans?

The impact of GST on personal loans has not been much as it is not levied on EMIs. However, the service tax has increased from 15% to 18%. As a result, the one-time costs including processing fee, prepayment charges, etc. will rise.

Q1. What will happen if I don’t pay a personal loan EMI?

Missing a single EMI might not have a major impact on your credit score, however, missing multiple EMIs will. Repeated failure will not only affect your credit score but also increase your outstanding debt. In rare cases, preliminary notices can be sent by the lender mentioning the outstanding loan amount and penalty charges. The bank may also go for legal proceedings or approach the guarantor (if any).

Q2. What are the pros and cons of personal loan balance transfer?

It may happen that you took a personal loan at a higher rate of interest because you needed the funds immediately. However, you later find that other lenders are offering a lower rate of interest. In such a case, personal loan balance transfer is the most effective way to reduce your burden. Let’s look at the various pros and cons of balance transfer to help you take an aware decision:

Pros:

  • Lower rate of interest: You will have to pay interest at a lower rate to the second bank.
  • Shorter tenure/ Lower EMI: You may choose to pay the same EMIs for a shorter tenure or lower EMIs for the same tenure.

Cons:

  • Processing fees: You will have to pay processing fee to the second bank for balance transfer.
  • Prepayment Charges: You may have to bear the prepayment charges to the first bank.

Thus, you should always do a cost benefit analysis before availing a personal loan balance transfer so that your savings on the interest component is greater than the processing fees and prepayment charges.

Q3. Are personal loans tax exempted?

As per the Income Tax Act, there is no specific deduction allowed for personal loans. However, if you are taking a personal loan for house renovation, you can claim an exemption up to Rs. 2 lakh on the interest component of the personal loan as per section 24(b) of the Income Tax Act.

Q4. What do the terms settlement, default and closed mean with respect to a personal loan?

You may come across terms like settlement, default or closed with respect to your old or current loans/ credit cards while going through your credit report. These terms are in fact not specific to a personal loan and their meanings are as follows:

Settlement: This means that you were unable to pay off the loan amount. As a result you and your lender came to an agreement to pay only a portion of your dues instead of the entire outstanding amount. As much as 30% to 40% of your outstanding loan may be waived off by the lender as part of the settlement process. This should however be used as a last resort as it has severe adverse effect on your credit report.

Default: This means that you have defaulted on your loan, i.e., you have not paid your outstanding loan. Additionally, you and the lender were unable to come to an agreement regarding the outstanding dues. This is the worst possible outcome of taking a loan as it impacts your credit score severely and most lenders will deem you a risky borrower in the future.

Closed: This means that you have successfully paid off your loan. A successfully closed loan account helps maintain a good credit score and represents you as a low risk borrower to prospective lenders.

Q5. What does prepayment mean and are there any charges for it?

When a borrower pays off the loan amount before the designated due date, it is called prepayment. Yes, many banks and NBFCs charge a prepayment fee ranging from 1% to 5% on the outstanding principal amount of the loan.

Q6. What do partial prepayment and foreclosure mean?

Partial prepayment or part prepayment means when you pay off a part of your loan amount in advance, while foreclosure is when you completely pay off the loan amount before the due date.

Q7. What are the advantages of part prepayment and foreclosure?

Despite the associated charges, loan prepayment is an economically viable option. If you completely pay off/ foreclose the loan in advance, you save substantially on the interest component. Additionally, your outstanding debt decreases.

On the other hand if you partly prepay the loan amount, you can choose to either reduce your EMI payout or the loan tenure. Moreover, the part prepayment also helps you save on the interest component and decrease the outstanding debt.

Q8. Can I cancel a personal loan after the loan amount is disbursed?

In some cases, you may cancel a personal loan after disbursal subject to terms and conditions of the lender. Loan cancellation will lead to cancellation charges and processing fee. Please note that all banks do not allow loan cancellation once the amount is disbursed. However, you can always prepay the loan amount as per the terms and conditions of the bank and save on the interest component.

Q9. What is a top up loan?

Top-up loan refers to the second personal loan that can be taken over an existing personal loan. The second loan can either be used to consolidate debt or to meet a new requirement.  

Q10. Is personal loan taxable?

No. You do not have to pay additional tax if you get a personal loan. In fact the interest payable on a personal loan may be eligible for tax deduction u/s 24b if you use the loan proceeds for the purpose of home remodeling/renovation. 

Q11. Can I transfer personal loan to another person?

Under current regulations it is not possible to transfer your personal loan to another person. However, some lenders do have the option of having a co-borrower/guarantor for a personal loan and in such cases, the co-borrower/guarantor will be required to repay the loan in case the primary borrower defaults. 

The following is a comparison of personal loan features of banks across key categories*:

Bank Interest Rates
(per annum)
Processing Fees
(Rs.)
Partial Pre-payment Restrictions Minimum Foreclosure
Period
Foreclosure/Prepayment Charges
(Rs.)
Allahabad Bank 10.65% onwards 1.06% of the loan amount As per loan agreement As per the loan agreement 2.25% of outstanding loan amount only in case of takeover
Andhra Bank RLLR + 3.00% to RLLR + 5.65% As per the guidelines in force No charges for part prepayment As per the loan agreement Nil
Axis Bank 12-24% Up to 2% of the loan amount No charges for part prepayment As per the loan agreement Nil
Bajaj Finserv 12.99% onwards Up to 4.13% of the loan amount l Part prepayment amount must be 3 times of monthly EMI
l No charges if less than 25% of the principal outstanding is prepaid in a year
l Charges levied on the amount prepaid over and above 25% of the principal outstanding
As per the loan agreement 4% of principal outstanding amount
Bank of Baroda 11.40-16.40% 2% of the loan amount As per loan agreement - Nil
Bank of India 10.50% onwards Up to 2% of the loan amount As per loan agreement - As per loan agreement
Bank of Maharashtra 10.85-11.85% 1% of the loan amount As per loan agreement - As per loan agreement
Central Bank 11.25% onwards Rs. 500 As per loan agreement - As per loan agreement
Citibank 10.50-18.99% Up to 3% of the loan amount l Part prepayment is allowed after 12 months pf loan tenure.
l Part prepayment amount: Minimum 2 monthly EMIs and maximum 5 monthly EMIs
After 12 months of the loan tenure Up to 4% on total principal outstanding + Interest for the ongoing month
Federal Bank 11.49% onwards Up to 3% of the loan amount As per loan agreement - Nil for floating rate schemes
3% for fixed rate schemes
Fullerton India 12-36% Up to 3% of the loan amount As per loan agreement Loan can be foreclosed anytime during the loan tenure Up to 7% of the principal outstanding
HDFC Bank 10.75-21.30% Up to 2.5% of the loan amount l Part prepayment allowed after repayment of 12 EMIs
l It is allowed up to 25% of principal outstanding
l Allowed only once in a FY and twice during the loan tenure
After repayment of 12 EMIs Nil
HSBC Bank 10.50-17.84% Up to 1% of the loan amount As per loan agreement As per loan agreement Up to 3.75% of the principal outstanding
ICICI Bank 11.25% onwards Up to 2.25% of the loan amount Not Allowed After repayment of 12 EMIs 5% of the principal outstanding
IDBI Bank 9.65-12.40% 1% of the loan amount Allowed at anytime after the loan disbursal, however, no further personal loan will be approved for the next 12 months Anytime after the loan disbursal Nil, if foreclosed before 6 months of loan disbursal
 
2% of the principal outstanding, if foreclosed after 6 months
IDFC First 11.50% onwards Up to 3.5% of the loan amount Part prepayment up to 40% of loan amount is allowed every year on IDFC Smart Personal Loan After 6 months of loan tenure 5% of the principal outstanding
Indian Bank 10.35% onwards 0.512% of the loan amount As per loan agreement - As per the loan agreement
IndusInd Bank 10.75% onwards Up to 2.5% of the loan amount Not Allowed After 12 months for salaried clients and after 6 months for self-employed clients 4% of the principal outstanding
Kotak Mahindra Bank 10.99-24% Up to 2.5% of the loan amount Not Allowed Anytime during the loan tenure 5% of the principal outstanding, if foreclosed after 12 months
 
6% of the principal outstanding, if foreclosed before 12 months
Muthoot Finance 14.50% onwards As per the guidelines in force As per loan agreement - As per the guideline in force
Punjab National Bank RLLR+2.15 to RLLR+6.70% 1.80% of the loan amount Can be done anytime during the loan tenure Anytime during the loan tenure Nil
RBL Bank 12-23% Up to 4% of the loan amount As per loan agreement 1 year after the first EMI Up to 5% of the principal outstanding
Standard Chartered Bank 10.99% onwards Up to 3% of the loan amount As per loan agreement After repayment of 12 EMIs Up to 5% of the principal outstanding
State Bank of India 10.50% onwards Up to 1.5% of the loan amount As per loan agreement - Up to 3% of the principal outstanding
TATA Capital 10.99% onwards Starts at Rs. 1499 l Allowed after 6 months
l Can be done only once a year
l Minimum gap between 2 part prepayments is 6 months
l Charges: 2.5% if more than 25% of principal outstanding is prepaid, otherwise nil.
After 6 months of loan tenure 4.5% of the principal outstanding
UCO Bank 10.95% onwards 1% of the loan amount As per loan agreement - As per loan agreement
Union Bank of India 10.10% onwards 0.5% of the loan amount As per loan agreement - As per loan agreement
Yes Bank 10.99% onwards Up to 2.5% of the loan amount l Allowed after 12 EMI payouts
l Part prepayment charges: 2% of part prepayment amount
After 12 EMI payouts Nil to 4% of the outstanding principal on the basis of tenure

*The above figures and subject to change and GST may be applicable in addition in case of many of these charges.

Personal Loan
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Personal Loan

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Glad that there wasn't any demand for collateral while getting the IDFC Loan.


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PaisabazaarRight and the accurate loan
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PaisabazaarPaisabazaar was so helpful
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Happy that Paisabazaar was so helpful in getting me this loan scheme.


Posted on: Jul 17 , 2019