Things About Personal Loans You May Not Know


  • Do you know Personal Loans can be given to individuals with NO credit history?
  • Yes, it can be the case! Check here some other less known facts about Personal Loans

People often apply for a personal loan to meet their various needs as it can get approved instantly. Those who apply diligently know the importance of income and credit score towards the approval of personal loans. Plus, many know it’s a short-term loan that can be taken for a maximum of 5 years. Even as people have a fair knowledge of personal loans, they are still unaware of some critical aspects regarding the credit type. So, what are those aspects? Well, they can be regarding the purpose for which you want to take a loan, the cost structure, additional services, etc. Let’s spare some time and check some less known things about a personal loan in this post.

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Five Less Known Things About a Personal Loan

We have shortlisted five things about a personal loan that many may not know. These are ignorance regarding flat vs reducing personal loan interest rate, the possibility of a loan without a credit score, the function of processing fee, etc.

Personal Loans can be Approved without a Credit History

A credit history remains critical to the approval of personal loans since they are unsecured loans granted to borrowers without any security or collateral. That only increases the credit risk of lenders who might find it hard to recover the dues should you default on loan payments. So, lenders ask for a credit score of 700 and above at least. If you have a score of 750 and above, the approval becomes more of a formality. But even if you don’t have a credit history, the loan can be approved. Yes, banks offer pre-approved personal loans to customers based on savings and salary account relationships too. Salary account holders, in particular, are under the eye line of lenders who get an idea of the salary the concerned individual is getting. Plus, lenders also get to know the balance customers are maintaining in the account. All that helps lenders figure out a suitable pre-approved personal loan offer for such individuals.

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Repayment can Vary Even as Loan Amount, Tenure and Interest Rate Remain the Same

This might leave you surprised, but it can be the case. Personal loan interest rates are offered on a reducing balance and flat rate basis. With a flat rate in place, the interest will be charged on the principal loan amount, irrespective of the repayment you make month after month via Equated Monthly Installments (EMIs). Whereas, in a monthly reducing balance rate method, the interest rate will be charged on the outstanding balance left after each EMI payment. You can get an idea now that the personal loan offered on a monthly reducing basis will lead to lower interest payments compared to when it is given on a flat rate basis. This will get even clearer when you check the example shown below.

Example – Sakshi and Hemlata apply for a personal loan of INR 6.50 lakh each for 5 years at an interest rate of 14% per annum but at different banks. While Sakshi has got it on a monthly reducing balance basis, Hemlata is given the loan on a flat rate basis. Hemlata, who has got the loan on a flat rate basis, will most likely pay the total interest of INR 4,55,000 (6,50,000 x 14% x 5). Her EMI will be INR 18,417. Whereas, Sakshi will pay the EMI of INR 15,124 and total interest of INR 2,57,462 over 5 years. Sakshi saves around INR 3,293 on EMI and INR 1,97,538 on interest payments over Hemlata. The repayment for Sakshi is calculated using the Personal Loan EMI Calculator of Wishfin as the tool works on a reducing balance basis.

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Many are Still Unaware of How Processing Fee Works in a Personal Loan

The processing fee payable towards a personal loan does not work the same way as other loans. In a personal loan, the processing fee gets debited from the loan amount you apply. So, you don’t need to submit a processing fee cheque as the lender deducts it from the applied loan amount. The amount arrived after the deduction of the fee from the loan amount will be the one that the lender will disburse to your account. But the interest rate will be charged on the applied amount. For example, if you apply for a personal loan of INR 5 lakh at a bank that charges a processing fee of say INR 10,000, you will get a disbursal of INR 4,90,000. But the interest will be charged on INR 5 lakh. So, keep this fact in mind when you apply for a personal loan. Doing so will prevent confusion that you can have if you don’t know this.

Personal Loans can Come with an Insurance Cover

Yes, some lenders offer borrowers an insurance cover on their personal loans. Having an insurance cover ensures the loan gets paid in case you find it hard to pay the EMI because of prolonged unemployment, poor health, etc. You will need to pay the insurance premium either upfront or through the EMIs to get the loan cover. But is it worth taking a personal loan insurance cover? Maybe not, if you already have a term insurance plan with a cover amount more than the loan amount.

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Personal Loans can be Given for Home Renovation Too

Personal loans are usually applied for marriage, education, travel and medical emergencies. But many don’t know they can get a personal loan for home renovation too. They think only a home loan is available for home renovation, which is not true. A personal loan can be given too, provided you meet the usual income and credit score criteria. The only difference is that the interest rate on a home loan will most likely be lower compared to a personal loan taken for home renovation.

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  • Personal Loan Interest Rates September 2023
    Fullerton India12.00% - 24.00%
    HDFC Bank10.75% - 14.50%
    ICICI Bank10.75% - 19.00%
    IndusInd Bank10.25% - 26.00%
    Kotak Bank10.99%
    RBL14.00% - 23.00%
    Standard Chartered Bank11.49%
    Tata Capital10.50% - 24.00%
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