What Is a Personal Loan? Everything You Should Know Before Applying

Whether it is about paying your rent, buying a laptop, funding a medical emergency, or even starting something small on your own, sometimes you may need extra funds. That is when a personal loan can help. But before you apply for one, it is essential to understand what this type of loan really is, how it works, and how you can ensure it doesn’t become a burden later. This blog will walk you through everything you need to know before applying.

What Is a Personal Loan?

It is money you borrow from a bank or a non-banking financial company (NBFC) that you can use for personal needs. You can use this money for anything—travel, education, medical treatment, paying off other loans, or even to support a business idea. Unlike home or car loans, a personal loan does not require any security or collateral.

You borrow a fixed amount of money for a fixed period, and repay it in monthly instalments known as EMIs (Equated Monthly Instalments). The loan comes with an interest rate, which is the extra money you pay over time for borrowing the funds.

Who Can Apply for a Personal Loan?

Anyone with a regular income can apply for these loans. That includes salaried professionals, freelancers, small business owners, and self-employed individuals. Most banks and lending apps also offer personal loans to gig workers and part-time employees if they can show proof of income and a decent credit history.

Students and fresh graduates may also be eligible, depending on their income and financial background. If you are just starting out in your career, some lenders might require a co-applicant with a stable income.

How Much Can You Borrow?

The amount you can borrow depends on several factors, including:

• Your monthly income
• Your credit score
• The lender’s policies
• Your existing loans and expenses

Most lenders offer personal loans ranging from ₹10,000 to ₹10 lakh. If you take a loan for the first time or have a lower income, you may get a smaller amount. But even small loans can be very helpful when managed well.

Interest Rates and Tenure

Interest rates for personal loans usually range between 10% and 24% per annum. The exact rate you get depends on your credit profile. If your credit score is high and you have a regular income, you may qualify for a better rate.

You can usually choose a repayment period between 6 months and 5 years. A longer tenure means smaller EMIs but more interest paid overall. A shorter tenure will save interest but increase your monthly payments.

Importance of Planning Before Borrowing

Borrowing money can solve problems in the short term, but if not planned properly, it can create stress later. This is why it is essential to ask yourself:

• Can I afford the monthly EMI?
• Will I be able to pay on time every month?
• How will this loan affect my other expenses?

Before applying, use an EMI calculator to find out what your monthly payment will be. Many banks and apps provide free tools online to help you figure this out.

Documents Needed to Apply

To apply for a personal loan, you usually need the following documents:

• Proof of identity (Aadhaar, PAN, voter ID)
• Proof of address
• Proof of income (salary slips, bank statements, ITR)
• Recent photographs
• A good credit history (in most cases)

Some finance technology (fintech) companies or non-banking financial companies (NBFCs) may offer instant personal loans with fewer documents, especially for smaller amounts.

The Takeaway

A personal loan can offer timely financial support when you need it most. But like any financial tool, it must be used wisely. Know how much you need, check if you can repay it on time, and always compare offers from different lenders. Take time to read the terms and conditions carefully. So, a personal loan can be a stepping stone to achieving your short-term goals without disturbing your long-term financial health.