Need and importance of Personal Loans

A personal loan is and should be taken to tide over emergencies only. It should not be taken on whims or just because one feels like splurging. They carry high interest rates or if it is a secured personal loan then you may lose your collateral.

If you are self-employed or salaried, there may be times when you need instant cash for emergencies of different kinds, then you could go for a personal loan. Timing and speed are vital factors while choosing a personal loan across various institutions.

Numerous uses of Personal loans are domestic or foreign travel, medical treatment for self or family members, education, marriage, business expansion, working capital, working requirements and meeting margin money for purchase of assets and so on and so forth.


  • Some lenders offer secured loans (which need guarantors or collateral security) while others don’t have any eligibility criteria.
  • Minimal paperwork.
  • Some banks provide loans only to salaried people and not to self-employed individuals.
  • Some institutions take few hours to process the loan, others may take 3-4 days including one day for field investigation.
  • Personal loans are available up to Rs 20 lakh depending on the type of institution or bank.
  • The Credit Information Report (CIR) play a crucial role in a lender’s decision to approve a loan application.

Interest rates: Employees of category ‘A’ companies the lending rate is around 14 % per annum, of category ‘B’ companies it is 15-16 %, and it is higher at 18 % for category ‘C’ companies. The rate of interest varies from 14-21% and the period from 12-60 months.

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Documents required: Documentation includes proof of identity, residence, income and bank statements for 3-6 months.

Processing fees: Starts from 1.5 % and above on the loan amount.

Pre-closure charges: Depend on the institution, but foreclosure before six months is not encouraged.

Extra: Some housing finance institutions provide top-up loans which can be used as personal loans in emergencies. But it is only available to existing home loan customers from the same institution.