Types of Personal Loans in India Explained with Bank
Personal loans in India come in various forms, each suited for different financial needs. These loans can be categorized based on security, purpose, and eligibility. Moreover, Therefore, understanding the types can help you choose wisely. Here’s a detailed breakdown of the most common types of personal loans, current interest rates, key factors affecting loan terms, and smart tips for borrowers.
Some Popular Personal Loans
Personal loans are among the most widely used financial products in India, offering quick access to funds without the lengthy approval process of traditional loans. Whether you’re a salaried employee, self-employed, or a business owner, there are several types of personal loans that can be tailored to your specific financial needs. Below are some of the most popular personal loan options in India, along with their features, pros, and cons.
Unsecured Personal Loans
Firstly, Unsecured personal loans are the most common. These loans do not require you to pledge any asset as security, which makes them accessible to salaried employees and professionals who may not own property or gold. In fact, Approval depends mainly on your credit score, income level, and repayment capacity.
Loan Size & Tenure: ₹50,000 to ₹25 lakhs, repayable within 1–5 years.
Typical Use Cases: Paying for weddings, higher education fees, vacations abroad, or emergency medical expenses.
Pros:
No collateral required: Perfect for people without major assets.
Quick processing: Loans are often disbursed within 24–72 hours.
Flexible usage: Can be used for almost any personal need.
Cons:
High interest rates: Usually 10%–24% per year.
Strict eligibility: Requires a stable income and good credit score.
EMI burden: Missing payments can hurt your credit history.
Example: For instance, consider. A young IT employee in Bangalore takes an unsecured loan of ₹3 lakhs to fund his sister’s wedding. Since he has a good salary and a CIBIL score of 750+, the loan is approved within 48 hours.
Secured Personal Loans
Secondly, Secured loans require the borrower to pledge assets like gold, property, or a fixed deposit as collateral. As a result, Since the lender’s risk is lower, these loans come with lower interest rates and higher borrowing limits.
Loan Size & Tenure: ₹5 lakhs to ₹50 lakhs (or more, depending on the collateral), with tenure of 5–15 years.
Typical Use Cases: Business expansion, higher education abroad, or consolidating multiple debts into one loan.
Pros:
Lower interest rates: Often 2–5% cheaper than unsecured loans.
High loan amounts: Suitable for funding big expenses.
Longer repayment periods: Easier EMIs for borrowers.
Cons:
Risk of asset seizure: If you default, you could lose your property or FD.
More paperwork: Requires legal documents and asset verification.
Longer approval time: Unlike unsecured loans, secured loans may take weeks to get approved.
Example: For example A shop owner in Delhi pledges his small commercial property to get a secured personal loan of ₹20 lakhs to expand his retail store.
Salary Account-Based Loans
In addition, If you have a salary account with a bank, you may already be eligible for a pre-approved personal loan. Therefore, Banks track your salary inflow and repayment history, so they often extend personal loan offers directly to your account.
Loan Size & Tenure: Usually up to 24 times your monthly salary; tenure ranges from 1–5 years.
Typical Use Cases: Small to medium financial needs like festive shopping, travel, or emergency bills.
Pros:
Instant approval: Sometimes within minutes.
Lower interest rates: Banks give better terms to trusted salary account holders.
Minimal documentation: No need to submit income proof separately.
Cons:
Limited availability: Only for salary account holders in good standing.
Restricted loan size: Loan eligibility tied to your salary amount.
Example: For instance, An employee earning ₹60,000 per month with HDFC Bank gets a pre-approved personal loan of ₹6 lakhs instantly credited to his account through net banking.
Purpose-Specific Personal Loans
Moreover, These are personal loans designed for specific needs such as weddings, education, medical expenses, or home renovations. However, While they function like regular personal loans, they are tailored to suit the expense and may come with special offers.
Loan Size & Tenure: Varies depending on purpose; can go up to ₹25 lakhs with repayment terms of 1–7 years.
Typical Use Cases: Destination weddings, hospitalisation, tuition fees, or interior designing.
Pros:
Tailored benefits: Lower interest rates or flexible repayment for specific needs.
Minimal paperwork: Especially for education and medical loans.
Better approval chances: Lenders often prioritise these loans.
Cons:
Restricted usage: Funds must be used for the stated purpose.
Interest variations: Not always cheaper than general personal loans.
Example: A student takes a purpose-specific loan of ₹8 lakhs to study MBA in the UK, which offers a longer repayment holiday compared to regular personal loans.
Overdraft Against Fixed Deposit (FD)
Another option is overdraft against FD. Instead of breaking your FD in times of need, you can take an overdraft against it. The loan amount depends on the FD’s value, and This means you only pay interest on what you use.
Loan Size & Tenure: 70–90% of FD value; tenure linked to FD maturity.
Typical Use Cases: Short-term liquidity crunch, business working capital.
Pros:
Interest only on usage: Cheaper than paying EMIs on a lump sum.
FD continues earning interest: You don’t lose your savings.
Lower rates: Usually 2–3% higher than FD interest rate only.
Cons:
Limited loan size: Depends entirely on FD value.
Not for long-term needs: Best for short-term expenses only.
Example: For example, A businessman with an FD worth ₹10 lakhs avails an overdraft of ₹7 lakhs to pay for bulk inventory.
Gold Loans
Similarly, Gold loans are one of the fastest ways to raise money in India. Therefore, By pledging gold jewellery or coins, you can get cash within hours.
Loan Size & Tenure: ₹10,000 to ₹25 lakhs; tenure ranges from a few months to 3 years.
Typical Use Cases: Urgent medical expenses, education, or small business needs.
Pros:
Quick disbursal: Often within the same day.
Lower interest rates: Cheaper than unsecured loans.
Minimal documentation: Only ID and gold required.
Cons:
Risk of losing gold: If you fail to repay.
Shorter tenures: Not ideal for long-term borrowing.
Fluctuating value: Loan depends on gold’s market price.
Example: A farmer pledges gold jewellery worth ₹5 lakhs to secure a ₹3.5 lakh gold loan to buy seeds before the sowing season.
Current Interest Rates from Leading Banks (April 2025)
As of April 2025, here are the latest bank rates.
- HDFC Bank: Interest rates from 10.85% p.a. | Loan up to ₹40 lakh | Tenure up to 6 years | Processing fee: ₹6,500
- ICICI Bank: Interest rates from 10.85% p.a. | Loan up to ₹50 lakh | Tenure up to 6 years | Processing fee: 2% of loan amount
- Bank of India: Interest rates from 10.85% p.a. | Loans up to 36x gross monthly salary | Tenure up to 84 months | Special offers for doctors, government employees, and PSU staff
- State Bank of India (SBI): Interest rates from 11.25% p.a. | Processing fee: 0% to 1.5% depending on profile
Key Factors Affecting Personal Loan Interest Rates
Several factors influence personal loan rates. For example:
- Credit Score: A higher credit score (750+) leads to lower interest rates.
- Loan Amount & Tenure: Larger loans and longer durations may attract higher rates.
- Employment Status: Salaried individuals with stable income get better terms than self-employed.
- Banking Relationship: Long-standing customers may receive preferential interest rates.
Recent Trends in India’s Loan Market
Recently, the Indian loan market has seen major changes.
- For instance, Rising Defaults: Defaults are increasing among retail borrowers, especially in personal and micro loans.
- Consequently, RBI’s Regulatory Actions: The Reserve Bank of India has introduced stricter lending norms to manage retail loan growth.
- Relaxed Capital Rules (Feb 2025): RBI eased rules for microloans, boosting lending in that segment.
Smart Tips for Borrowers
Finally, to borrow wisely, keep these tips in mind.
- Know Your Requirement: Borrow only what you need and ensure it aligns with your repayment ability.
- Compare Offers: Look at interest rates, processing fees, tenure, and prepayment charges before choosing a lender.
- Check Eligibility: Use online tools to check your eligibility to avoid application rejection.
- Read the Fine Print: Understand repayment terms, foreclosure charges, and late payment penalties.
Conclusion
In conclusion, Personal loans can be a convenient way to meet your financial goals. But it’s essential to understand the different types available, the current market rates, and factors that influence loan approval. Platforms like MoneyBuddha.in help you compare offers, apply online, and access the best financial products tailored to your needs. Therefore, staying informed helps you make smarter decisions in 2025 and beyond.
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