Personal Loan Calculator

The Truth About Personal Loans

A Personal Loan is an unsecured loan, meaning you don't need to pledge any collateral (like gold or property) to get it. Because the bank takes a higher risk, the interest rates are significantly higher than Home or Car loans.

When to take one: Medical emergencies, debt consolidation (paying off high-interest credit cards), or urgent home repairs.
When to avoid: Vacations, weddings, or buying luxury gadgets. Using a 14% loan for depreciating assets is a financial disaster.

Your CIBIL Score is Everything

Since there is no collateral, banks rely 100% on your Credit Score to decide your interest rate.

Beware of Hidden Charges

The interest rate is not the only cost. Personal loans are notorious for hidden fees that agents often don't mention.

1. Processing Fee

Banks charge 1% to 3% of the loan amount as a processing fee. This is deducted from the disbursed amount.
Example: If you take a ₹5 Lakh loan with a 2% fee, you will only receive ₹4.90 Lakhs in your account, but you will pay interest on the full ₹5 Lakhs.

2. Pre-closure / Foreclosure Charges

Unlike Home Loans (which have zero penalty for floating rates), Personal Loans have a Lock-in Period (usually 6-12 months). If you try to repay the loan early to save interest, banks charge a penalty of 4% to 5% on the outstanding principal.

Tip: Always negotiate for a "Zero Pre-closure Charge" clause if you expect a bonus or salary hike soon.

Personal Loan vs. Credit Card Loan

Many people confuse the two. Here is why a Personal Loan is usually better for large amounts.

• Interest Rate: Personal Loans are 11-16%. Credit Card EMIs are often 36-42% annually.
• Tenure: Personal Loans allow up to 5 years. Credit cards usually max out at 24 months.
• Impact on Score: Maxing out your credit card limit hurts your CIBIL score (High Utilization). Taking a personal loan adds "Term Loan" mix, which can actually improve your score if paid on time.