What is a Personal Loan? A complete guide for borrowers

Imagine you are planning your wedding. The venue is booked, caterers have confirmed and the guest list keeps growing. As the celebration comes together, so do the expenses, often faster than anticipated.

In moments like these, many people seek personal loan solutions to fund their expenses. Personal Loan is an unsecured loan offered by financial institutions that can be used for almost any personal goals such as wedding, education, travel and more.

This blog will outline what a personal loan is, the different types of loans and their key benefits, as well as eligibility and how to apply for them.

What is a Personal Loan?

Personal Loan is an unsecured loan taken from a bank/NBFC that does not require collateral or security. Unlike a home loan, car loan or education loan, which are tied to a specific asset or purpose, a personal loan can generally be used for any personal goals. The use of the personal loan is up to the borrower’s discretion. It is a useful option for those looking to fund expenses. The loan amount is repaid through fixed monthly instalments, known as Equated Monthly Instalments (EMIs) over a chosen tenure.

How Does a Personal Loan Work?

• Application: Borrowers can apply for loan online or fill the form in person at the respective branch. It is advisable to keep details such as income, employment status and credit history readily available, as these may be required during the application process.
• Document and income verification: The lender reviews the application documents, including identity proof and bank statement to confirm the borrower’s financial profile.
• Credit assessment: The lender assesses the borrower’s credit score, existing financial obligations and repayment capacity to determine eligibility and loan terms.
• Approval: Once the application is assessed, the lender communicates the approved loan amount, interest rate and tenure.
• Disbursal: After final confirmation, the approved loan amount is disbursed to the borrower. With digital lenders, this process can be relatively quick.
• Repayment via EMI: The loan is repaid with fixed monthly instalments over the chosen tenure.

One of the key advantages of a personal loan is that since it is unsecured in nature, borrowers do not have to pledge assets, reducing the risk of asset loss in the event of default. However, there may be an impact on the credit score, leading to required recovery action.

Types of Personal Loans

There are a variety of types of personal loan solutions to suit different borrower needs. There are a variety of personal loan solutions available to cater to the diverse financial needs and goals of borrowers. Following is an overview of loans to choose from, if you are seeking personal loans:

Unsecured Personal Loans

The most common form, an unsecured personal loan, does not require any collateral. Approval is based on the borrower’s creditworthiness, income stability and repayment capacity. This is commonly offered by most banks and NBFCs.

Secured Personal Loans

A smaller number of lenders offer secured personal loans, where an asset such as a fixed deposit, gold or an insurance policy is used as collateral. Since the lender faces less risk, these loans can have comparatively lower interest rates.

Personal Loan for Wedding

Often marketed specifically for wedding-related expenses, these are typically personal loans positioned for a particular use case.

Personal Loan for Travel

A travel loan is a personal loan for funding holidays or pilgrimages. The loan amount can cover flights, accommodation and itinerary expenses.

Personal Loan for Medical

Medical loans are personal loans designed to cover most healthcare expenses. They offer access to funds needed for medical issues.

Personal Loan for Home Renovation

For homeowners looking to upgrade or repair their homes, a home renovation loan provides funds to remodel the interiors, conduct repairs and structural improvements.

Note: In specialised personal loans, it is important to understand that the core features like its unsecured nature, fixed EMI, flexible end-use are the same as a standard personal loan, the only difference is they are intended for a specific purpose.

Key Benefits of a Personal Loan

Personal loans have become a preferred borrowing option for many individuals due to their accessibility, flexibility and range of benefits.

• No collateral or security required: Borrowers do not need to pledge any assets to apply, making personal loans accessible.
• Flexible end-use: Funds can be directed towards almost any personal goals such as medical expenses, travel, a wedding or home improvement, entirely at the borrower’s discretion.
• Predictable monthly budgeting: Fixed EMIs make it easier for borrowers to plan their monthly budget without worrying about fluctuating repayment amounts. This allows for stable financial planning.
• Flexible tenure options: Borrowers can choose a repayment tenure that is comfortable with their various financial obligations in mind.
• Digital process: The end-to-end digital application means minimal paperwork and makes the process straightforward.
• Supports credit history: Consistent, timely repayment of a personal loan can contribute positively to a borrower's credit score over time, strengthening their financial profile for future borrowing.

Personal Loan in India: Eligibility and Documents Required

To secure a personal loan, the borrower must meet certain eligibility criteria. The following outlines typical eligibility factors and documentation requirements:

Eligibility Criteria

• Age: Generally, between 25 and 55 years, though this can vary by lender
• Employment: Both salaried individuals and self-employed professionals may be eligible
• Minimum monthly income: Lenders typically set an income threshold to assess repayment capacity
• Employment stability: A consistent employment or business track record strengthens the application
• Credit score: Credit score is also used to determine repayment capacity

Documents Required

• KYC documents: PAN card and Aadhaar card
• Income proof: Recent salary slips and Form 16 for salaried applicants; Income Tax Returns for self-employed individuals
• Bank statements: The lender outlines the details of the bank statements required

Note: The eligibility criteria here are indicative and general and final eligibility is subject to the lender’s assessment and verification.

How to Apply for a Personal Loan with Godrej Capital

The application process for a personal loan with Godrej Capital through Godrej Finance Limited is fully digital and straightforward. Here is a breakdown of the process:

• Fill in details: You can visit the Godrej Finance Limited website and complete the online application form with their personal, employment and financial details.
• Upload documents: Submit the required income and bank statements
• Submit KYC: To verify identity, submit KYC documents including PAN and Adhaar card
• Await assessment and approval: The application undergoes credit and income verification. The process is streamlined, though final approval timelines are subject to verification and there is no fixed time guarantee.
• Receive disbursal: Once approved, the loan amount is transferred to the borrower.

You can also assess your EMIs by using the Personal Loan EMI calculator before applying for personal loan.

Final Thoughts

A personal loan is a collateral-free loan that allows borrowers to fund a variety of expenses including weddings, travel, home renovations and more. Understanding what a personal loan is, the different types and how they work as well as eligibility criteria allows borrowers to access personal loans from banks or NBFCs. With a clear repayment plan and the right loan amount, a personal loan can be a practical part of a borrower's personal finance toolkit.

Apply Now for a Personal Loan.

FAQs

Q.1. What is a personal loan in India?

A. A personal loan in India is an unsecured loan from a bank or NBFC used for personal needs such as medical expenses, travel, weddings or home renovation. It is repaid through fixed monthly EMIs over a chosen tenure.

Q.2. What can a personal loan be used for?

A. A personal loan can be used for almost any personal need at the borrower’s discretion. Examples include medical expenses, weddings, travel, home renovation and more.

Q.3. Do I need collateral to get a personal loan?

A. No, a personal loan is unsecured, which means you do not need to pledge any asset or property to apply. Approval is based on your income, credit score and repayment capacity. However, there are a small number of lenders that do require collateral in the form of gold or an insurance policy.

Q.4. What are the main benefits of taking a personal loan?

A. Key benefits include no collateral requirement, flexible end-use, fixed EMIs that allow for predictable financial planning and flexible tenure options. The application process is digital and straightforward.

Q.5. Can self-employed individuals apply for a personal loan?

A. Yes, self-employed individuals can apply for a personal loan by submitting Income Tax Returns, bank statements and relevant business documents as proof of income and financial stability.

Q.6. Can I get a personal loan with a low credit score?

A. A low credit score can reduce your chances of approval or result in a higher interest rate. It is advisable to check your credit score before applying and understand the lender’s requirements.

Q.7. Can I apply for a personal loan online?

A. Yes, most lenders, including Godrej Capital through Godrej Finance Limited, offer a digital application process where you can apply, submit documents and complete e-KYC online.

Q.8. Does taking a personal loan affect my credit score?

A. Applying for a personal loan may result in an enquiry on your credit report. Timely repayment can improve your credit score over time, while missed payments can negatively affect it.

Disclaimer:

The content presented on this page, including images and factual information, is intended solely as a summary derived from publicly available sources. GHFL/GFL (“Company”) does not claim ownership of such information, nor does it represent that the Companies have exclusive knowledge of the same. While efforts are made to ensure accuracy, there may be inadvertent errors, omissions, or delays in updating the content. Users are strongly encouraged to independently verify all information and seek expert advice where necessary. Any decisions made based on this content are solely at the discretion and responsibility of the user. Godrej Capital and its affiliates assume no responsibility for any loss or damage that may result from the use of or reliance on the information provided herein.