What Is a Personal Loan and How Does It Work?
In today’s fast-paced life, financial needs can arise anytime—medical emergencies, weddings, education expenses, travel plans, or even consolidating existing debts. A personal loan is one of the most convenient financial solutions to manage such expenses without putting any asset at risk.
In this blog, we’ll explain what a personal loan is, how it works, its benefits, eligibility, documents required, and important things to consider before applying.
What Is a Personal Loan?
A personal loan is an unsecured loan offered by banks and NBFCs (Non-Banking Financial Companies) to individuals for personal use. Since it is unsecured, you do not need to provide collateral such as property, gold, or fixed deposits.
You can use a personal loan for almost any purpose, including:
Medical emergencies
Wedding expenses
Education fees
Travel or vacations
Home renovation
Debt consolidation
Lifestyle or personal needs
In this blog, we’ll explain what a personal loan is, how it works, its benefits, eligibility, documents required, and important things to consider before applying.
How Does a Personal Loan Work?
The personal loan process is simple and mostly digital today. Here’s how it works step by step:
1. Eligibility Check
You start by checking your eligibility based on age, income, employment type, and credit score. This step does not affect your credit score if it’s a soft check.
2. Loan Application
Once eligible, you submit an online application along with basic documents like PAN, Aadhaar, and income proof.
3. Verification
The lender verifies your details, documents, and credit history.
4. Loan Approval
If everything meets the lender’s criteria, your loan gets approved within minutes to a few hours.
5. Loan Disbursal
After approval, the loan amount is credited directly to your bank account, usually within 24–48 hours.
6. Repayment Through EMIs
You repay the loan in monthly EMIs (Equated Monthly Installments) over a fixed tenure, typically ranging from 12 to 60 months.
Key Features of a Personal Loan
No collateral required
Quick approval & fast disbursal
Flexible loan tenure
Fixed EMIs
Minimal documentation
Multiple end-use options
Who Can Apply for a Personal Loan?
Most lenders have similar eligibility criteria. You can apply if you are:
An Indian resident
Aged between 21 to 60 years
Salaried or self-employed
Having a regular income source
Holding a decent credit score (usually 700+)
Exact criteria may vary depending on the lender.
Documents Required for a Personal Loan
The documentation process is simple and paperless in most cases.
Commonly required documents:
PAN Card
Aadhaar Card / Voter ID / Passport
Salary slips or income proof
Bank statements (last 3–6 months)
Passport-size photograph
Self-employed individuals may need additional business documents.
What Is EMI and How Is It Calculated?
EMI (Equated Monthly Installment) is the fixed amount you pay every month to repay your loan.
EMI depends on:
Loan amount
Interest rate
Loan tenure
Choosing the right tenure helps balance affordability and total interest paid.
