Personal loans are one of the most popular financing options today, offering quick access to funds for emergencies, major purchases, debt consolidation, weddings, or travel, without the lengthy approval processes of other loans. They work by providing a lump sum amount that you repay in fixed monthly instalments (EMIs) over a set tenure, with the interest rate depending on factors such as your credit score, income, and loan amount. Personal loans can be secured, where you pledge collateral like property or gold for lower interest rates, or unsecured, which require no collateral but often come with higher rates. Understanding the difference between these types, knowing how loan interest is calculated—often through the reducing balance method—and checking your eligibility criteria, such as income stability and CIBIL score, are essential steps before applying. Using tools like an EMI calculator can help you plan repayments effectively, compare lenders, and choose the most affordable option while avoiding debt traps.
What is a Personal Loan?
A personal loan is a flexible and widely used form of borrowing that gives individuals access to a fixed amount of money from a bank, NBFC, or other lending institution, which is then repaid over a pre-agreed period in equal monthly instalments (EMIs). Unlike home loans or car loans, personal loans are multi-purpose, meaning you can use the funds for almost anything — such as paying medical bills, funding education, consolidating debt, renovating your home, covering wedding expenses, or even taking a vacation. In most cases, lenders don’t require you to disclose exactly how you will use the loan amount, making it a convenient choice for varied financial needs.
Main Features Explained in Detail:
- Fixed Loan Amount – The lender approves a set amount based on your eligibility, income, and credit profile. Once approved, this amount does not change during the loan term.
- Fixed or Variable Interest Rate – Most personal loans come with a fixed interest rate, meaning your EMI remains the same throughout the tenure. Some lenders offer variable (floating) rates, which can change based on market conditions, affecting your monthly payments.
- Repayment Tenure – You can choose a tenure ranging typically from 1 to 7 years, depending on how quickly you want to repay and how much EMI you can afford. A longer tenure lowers your EMI but increases total interest paid, while a shorter tenure does the opposite.
- No Collateral Required (for Unsecured Loans) – Most personal loans are unsecured, meaning you don’t have to pledge property, gold, or other assets as security. This speeds up the approval process but may result in slightly higher interest rates because the lender is taking more risk.
In short, a personal loan is a quick, convenient, and versatile financing option — but it’s important to understand its terms, interest rates, and repayment obligations before borrowing to avoid unnecessary financial stress.
Difference Between Secured and Unsecured Loans
One of the most important distinctions in lending is whether a loan is secured or unsecured.
Feature | Secured Loan | Unsecured Loan |
Collateral Required | Yes (e.g., property, gold, car) | No |
Interest Rates | Usually lower due to lower lender risk | Usually higher |
Approval Speed | Can take longer (valuation & paperwork) | Faster |
Loan Amount | Can be higher depending on collateral value | Limited by creditworthiness |
Risk for Borrower | Risk of losing asset if repayment fails | No asset loss, but legal action possible |
Example:
- A mortgage loan is a secured loan.
- A personal loan without collateral is unsecured.
EMI calculator & how loan interest is calculated
An EMI calculator for loans is a simple yet powerful online tool that helps borrowers quickly determine the Equated Monthly Instalment (EMI) they will need to pay for a loan, based on three main inputs: loan amount, interest rate, and repayment tenure. This eliminates the need for manual calculations and allows you to plan your finances more accurately before committing to a loan.
When you enter the required details, the EMI calculator uses a standard mathematical formula to give you an instant result:
EMI = [P × R × (1 + R)^N] / [(1 + R)^N − 1]
Where:
- P = Loan amount (principal)
- R = Monthly interest rate (annual rate ÷ 12 ÷ 100)
- N = Total number of monthly instalments (tenure in months)
Example:
If you borrow ₹5,00,000 at 10% annual interest for 5 years, the calculator will show an EMI of about ₹10,624. This helps you immediately understand your monthly repayment obligation and the total interest payable over the tenure.
Benefits of Using an EMI Calculator:
- Time-saving – Get results instantly without complex manual math.
- Comparison Tool – Easily compare EMIs for different lenders, interest rates, or tenures.
- Budget Planning – See if the EMI fits into your monthly expenses before applying.
- Informed Decisions – Helps you choose an affordable loan amount and repayment period.
By using an EMI calculator before applying for a loan, you can avoid over-borrowing, choose the most cost-effective option, and prepare for timely repayments without straining your budget.
How to get personal loan with low cibil score
Getting a personal loan with a low CIBIL score (below 650) can be challenging because lenders see it as a sign of higher repayment risk. A low score often results from missed EMIs, high credit utilization, defaults, or too many loan/credit card applications. While banks are cautious in such cases, it’s still possible to get approved if you take certain steps to improve your chances.
Detailed Ways to Improve Approval Chances:
- Apply with a Co‑Applicant or Guarantor
If your spouse, parent, or friend has a good credit score and stable income, adding them as a co‑applicant can increase the lender’s confidence. The combined repayment capacity and credit profile make approval more likely, and you might get better interest rates. - Choose a Secured Personal Loan
Offering collateral such as gold, fixed deposits, or property reduces the lender’s risk. Since the loan is backed by an asset, lenders are more willing to approve applications even with a low score, often at lower interest rates than unsecured loans. - Opt for Smaller Loan Amounts and Shorter Tenure
Asking for a high loan amount with a low credit score can lead to rejection. Instead, start with a smaller amount and a shorter tenure. This shows the lender that you are less likely to default, and if you repay on time, it can also help rebuild your credit score. - Show Proof of Stable Income
Strong, consistent income can sometimes outweigh a low credit score in the lender’s decision-making. Provide salary slips, bank statements, or proof of regular business income to demonstrate that you have the means to repay the loan. - Approach NBFCs and Fintech Lenders
Banks often have stricter eligibility rules, while NBFCs (Non‑Banking Financial Companies) and fintech lenders are more flexible. Some specialize in loans for people with low CIBIL scores, though interest rates may be higher.
Tip:-
Even if you get approved with a low score, focus on improving your CIBIL score by paying EMIs on time, clearing outstanding dues, and keeping your credit utilization low. This will help you qualify for better loan terms in the future.
Final Thoughts :-
Personal loans offer quick, flexible funding for various needs, but smart borrowing is essential. Understand the loan type, interest calculation, and eligibility, use an EMI calculator to plan, and compare offers. Borrow only what you can repay to maintain a strong credit profile and avoid debt traps.