Money borrowed as a personal loan can be used for anything from unforeseen adversities like medical emergency or for leisure and travel holidays or even to take care of a wedding expense. A bank offers a personal loan without any security (e.g. house, car, FD, NSC, etc.). But you have to prove that your future income will be sufficient enough to repay the amount borrowed over a period of 1 to 5 years. You may use the amount borrowed for any purpose.
What banks in India call personal loans are unsecured loans. If you borrow money by offering either your home or your car or even fixed deposit/ NSC certificates, banks treat it as a secured loan rather than a personal loan. If you have such a security to offer, you could get better rates from the same bank by opting either for a Home Loan, or Loan against property or Car Loan or Loan against security. Only in case you are not willing to pledge any asset, should you consider taking an unsecured personal loan.
Depending on your credit score (published by a credit bureau like CIBIL), your interest rate could vary from 10% to 24% per annum
Annual Percentage Rate (APR) offered to customers in 2023-24 has ranged from 10.35% to 24.59%
Processing fees could vary from 2% to 3%. Foreclosure charges (also called prepayment fees) are applicable if you back earlier and range from 3% to 4% of the outstanding amount
Loan must be taken for at least 12 months
Loan must be repaid within at most 60 months
From ₹50,000 to ₹7,00,000
Failure to repay one or more EMIs on time can affect your credit score and hurt your ability to borrow in the future. Failure to repay dues for more than 60 days could result in legal recovery proceedings against you.
While the bank tries to independently establish whether you will be able and willing to repay, the prime responsibility remains that of the borrower - i.e. yourself. Only borrow as much as you will be able to repay taking into account the applicable interest. Do not borrow any more than what you believe your future income can support.
Let's say someone borrows an amount of ₹50,000
Loan Processing Fees @4% i.e. ₹2,000 would be deducted from the loan amount disbursed
Thus net amount disbursed: ₹48,000
Repayment period: 5 years
Interest rate: 21% per annum
Equated Monthly Installments (EMI) to be repaid for 60 months = ₹1,353 per month
Total Amount to be Paid Back = ₹2,000 + 60 * ₹1,353 = ₹83,180
Thus Total Cost of borrowing (fees + interest) on a ₹50,000 loan at 21% interest over 5 years would work out to ₹33,180