Personal Loan

Personal Loan in India

EMI formula, eligibility rules, comparison framework, prepayment, and balance transfer — all in plain English. No jargon. No fine print.

How Personal Loan EMI Works

A personal loan is an unsecured loan — you do not need to pledge any asset as collateral. The bank approves it based on your income, credit score, and employment stability. Each EMI you pay consists of principal and interest, calculated using the reducing-balance method.

Worked example — ₹5 lakh personal loan at 14% p.a. for 5 years

Loan amount: ₹5,00,000
Interest rate: 14% p.a. (monthly rate = 1.167%)
Tenure: 5 years (60 months)
Monthly EMI: approximately ₹11,600
Total amount paid over 5 years: approximately ₹6.96 lakh
Total interest paid: approximately ₹1.96 lakh

Eligibility Criteria

Banks assess personal loan eligibility mainly on four factors: your monthly income, credit score, employment type, and existing debt obligations. Here is how lenders typically evaluate each factor:

Income

Most banks require a minimum monthly income of ₹15,000–25,000, depending on the city and lender. Salaried employees with a regular employer are preferred.

Credit Score

A CIBIL score of 750 or above improves your chances of approval and better rates. Scores below 650 are likely to face higher rates or rejection.

Employment

Salaried employees, self-employed professionals, and business owners are eligible. Banks often prefer those with 2–3 years of continuous employment or business vintage.

Existing Obligations

Your existing EMIs should not exceed 40–50% of your monthly net income. A high existing debt burden reduces the loan amount you qualify for.

How to Compare Personal Loan Offers

When you get loan offers from multiple lenders, compare them on more than just the interest rate. The four key numbers to compare are:

Factor	What to look for
Interest rate	Lower is better — even 1% difference on ₹5 lakh over 5 years saves ₹15,000–20,000
Processing fee	Typically 1–3% of loan amount, capped at ₹10,000–25,000. Adds to your upfront cost.
Prepayment penalty	Many banks charge 2–5% of outstanding for lock-in period (typically 6–12 months). Floating-rate loans have no penalty after lock-in per RBI rules.
Total cost of loan	Use the EMI calculator to find total amount payable across all offers at the same tenure — this is the most accurate comparison.

Prepayment and Balance Transfer

Part-prepayment: Most lenders allow you to prepay part of the outstanding principal from the 6th EMI onwards. On a floating-rate personal loan, there is no penalty after the lock-in period. Part-prepayment reduces your outstanding principal, which lowers future EMIs or shortens the tenure — you choose.

Foreclosure: Paying off the entire loan before the tenure ends. Lock-in periods typically run 6–12 months. After that, floating-rate loans cannot legally carry foreclosure charges under RBI guidelines.

Balance transfer: Moving your outstanding loan to a new lender with a lower rate. Processing fees of 1–2% of the outstanding apply. A transfer makes sense when the new rate is at least 2 percentage points lower and you have more than 18 months remaining — otherwise the fee outweighs the savings.

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Frequently asked questions

What is the typical interest rate for a personal loan in India?

Rates range from about 10% p.a. to 24% p.a. as of 2026. The exact rate depends on your credit score, income, employer, and whether you have an existing relationship with the lender. Public sector banks typically start lower than private lenders.

What is the maximum tenure for a personal loan?

Most Indian lenders offer personal loan tenures from 12 months to 72 months (6 years). Some extend to 84 months for lower interest rates. A longer tenure reduces the EMI but increases total interest paid.

Does prepayment reduce the total interest on a personal loan?

Yes — when you prepay part of the principal, future EMIs are recalculated and the interest portion reduces. Most lenders allow part-prepayment from the 6th EMI onwards without penalty on floating-rate loans.

What is a personal loan balance transfer?

A balance transfer moves your outstanding loan to another lender offering a lower interest rate. Processing fees typically run at 1–2% of the outstanding amount. It makes sense only when the new rate is at least 2 percentage points lower.

Sources: Reserve Bank of India (RBI) loan guidelines (rbi.org.in) · SIDBI personal loan parameters · Income Tax Act 2025 · Bank websites (HDFC, ICICI, SBI). Rates verified 2026-10-08. Last reviewed by FinWiz24 Research Desk.