What is a Personal Loan? Meaning, Features, EMI & When to Take It (2025)
Understand what a personal loan is, how EMIs work, what it costs, approval factors, and when it makes sense. Updated for 2025.
What you’ll learn
A personal loan is an unsecured loan you can use for most legitimate personal needs. This guide explains how it works, how lenders decide your rate, what it costs (beyond interest), and when it’s a smart choice.
Personal loans are one of the simplest credit products: you borrow a fixed amount, repay it in fixed monthly EMIs over a fixed tenure, and pay interest on the outstanding principal. Because the loan is unsecured (no collateral), the lender relies heavily on your credit score, income stability, and repayment history.
What is a Personal Loan?
A personal loan is an unsecured installment loan offered by banks and NBFCs. You receive the loan amount in your bank account and repay it via EMIs (Equated Monthly Installments) that include both principal and interest.
Key characteristics
- • No collateral required (unsecured)
- • Fixed EMI and tenure in most cases
- • Flexible end-use (wedding, travel, medical, renovation, etc.)
- • Tenure typically 12–84 months
- • Disbursal can be fast (sometimes same/next day)
What it typically costs
- • Interest rate (varies by credit profile)
- • Processing fee + GST
- • Late payment charges (if EMI missed)
- • Part-prepayment / foreclosure charges (sometimes)
- • Insurance add-ons (optional; don’t accept blindly)
How Personal Loan EMIs Work
EMIs are calculated so your monthly payment stays (mostly) constant. Early in the tenure, a larger share of the EMI goes toward interest; later, a larger share goes toward principal.
Quick example (illustrative):
- • Loan amount: ₹5,00,000
- • Interest: 12% p.a.
- • Tenure: 36 months
- • EMI: ~₹16,607
Use the calculator to compare different interest rates and tenures.
Try Personal Loan EMI Calculator →Common Uses (and When It’s a Good Idea)
Good use-cases
- • Debt consolidation (especially credit-card rollover)
- • Medical emergency expenses (when savings insufficient)
- • Essential home repairs (roof, plumbing, safety issues)
- • Career investment (course fee) with clear ROI
Avoid if possible
- • Luxury purchases (gadgets, lifestyle upgrades)
- • Vacations on credit
- • Speculative investing (stocks/crypto) using borrowed money
- • Paying EMIs with another loan (debt spiral)
What Lenders Check Before Approval
- Credit score: Higher score usually means lower rate and faster approval.
- Income & stability: Salary consistency, employer profile, business vintage.
- Debt-to-income: Total EMIs vs net income (often kept under ~50%).
- Banking behavior: Return charges, overdrafts, irregular cash flows.
Tip
If you’re planning to apply in the next 30–60 days, reduce credit card utilization, avoid new credit inquiries, and keep salary credits consistent.
Personal Loan Checklist (Before You Apply)
- Compare at least 3 lenders (rate + fees + foreclosure).
- Decline unnecessary add-on insurance unless you truly need it.
- Choose the shortest tenure you can comfortably afford.
- Read the Key Fact Statement / loan schedule before signing.