« Back to articlePrint this article

6 good reasons why you must go for personal loans

Last updated on: September 25, 2014 11:11 IST

But before borrowers jump in joy they must know about the drawbacks too!

Personal loans offer help for any urgent cash crunch. A medical emergency, payments for a laptop, funding a vacation, quick cash for marriage -- whatever the need, personal loans are here to help.

Banks in India are more than willing to give a personal loan to the right applicant, but before jumping on to the bandwagon shouldn't you know the benefits and drawbacks of taking a personal loan?

Here are the pros and cons of personal loans every borrower must know

The benefits

1. No questions asked about the end use of the money

Banks will simply give the cash and it's up to the borrower, where to use it and how to use it. So, it is a very convenient monetary help.

2. No collateral, security or guarantors required

Personal loans are solely granted on the basis of an individual's credit-worthiness. Banks do take into account the income, employment, continuity of business and other factors so as to establish the fact that the borrower will be able to repay the personal loan with interest in due time.

No collateral or security requirements are put forth by the banks for issuing a personal loan. This saves a lot of embarrassment and hassles.

3. Total confidentiality

Since there are no security or collateral requirements, personal loans can remain a secret between you and the bank. Moreover every bank has some privacy policies, which ensures adequate confidentiality.

4. Easy repayment

Banks provide personal loans for 12 to 60 months. Varying from bank to bank, these tenures allow easy repayment options to the borrower. The borrowed amount along with the interest rate is calculated for the entire tenure of the loan and a EMI is calculated which the borrower has to pay every month. Personal loans also come with a prepayment clause.

5. Simple documentation

With minimal eligibility and zero collateral requirements, personal loans from banks in India require minimal documentation. A proof of identity, income proof and residence proof will suffice in most cases.

6. Big loan amounts

Depending on a borrower's repayment capacity, banks in India are willing to give a personal loan ranging from Rs 25000 to Rs 20,00,000. This makes a personal loan an ideal choice to meet big budget requirements.


1. High interest rates

Personal loans are unsecured loans. In most of the cases banks won't ask for a collateral, security or guarantee before issuing any personal loan, so it becomes a risky proposition for banks. To offset this risk, banks provide personal loans at higher interest rates.

Secondly, personal loan interest rates also vary from person to person. How much of a risk you are to the bank determines the terms and interest rates on your personal loan. A person with good existing loan repayment record, serving in a reputed public sector, government, MNC, or blue chip company is more likely to get a low interest rate personal loan than one who deviates from the standard norms.

A low risk borrower can get a personal loan at 16 per cent interest rates while it can climb up 30 per cent or more for others.

2. Not available to everyone

Banks enforce strict employment, income and residence criteria before issuing any personal loan. They'll only put their money where they find that the risk involved is minimal. So, a larger percentage of applicants are rejected in case of personal loans.

3. No part prepayments

Prepayment of personal loan can be done as a whole. Banks in India generally do not allow part prepayment of any personal loan. Moreover, there is a prepayment penalty of 2-5 per cent on the outstanding amount, which has to be paid to the bank while making any prepayments.


Ankit Sharma