If you are thinking about taking a personal loan, then you are in the right place. Many people take loans for different reasons, but they don’t fully understand how it works. Today, I will explain everything in very simple words. No complicated terms, no technical stuff—just clear and easy explanations.
What is a Personal Loan?
A personal loan is a type of loan that a bank or a financial company gives you without asking for any security or collateral. Collateral means something valuable, like your house or gold, that you keep as a guarantee. But in a personal loan, you don’t need to give anything as a guarantee.
Example:
Suppose you need ₹2 lakh to pay for a medical emergency. You don’t have that much money saved, and you don’t want to sell your gold. You can go to a bank and apply for a personal loan. If your bank approves it, you get ₹2 lakh in your account, and you can use it for any purpose. Later, you will have to repay the money in monthly EMIs (Equated Monthly Installments) with interest.
Why Do People Take Personal Loans?
There are many reasons why people take personal loans:
- Medical Emergency – If someone in your family falls sick and you need urgent money for hospital bills.
- Marriage Expenses – Indian weddings are costly. Many people take loans to manage the expenses.
- Education – Some students take personal loans to pay for their college or higher studies.
- Home Renovation – If you want to repair or upgrade your house, you can take a personal loan.
- Debt Consolidation – If you have many small loans, you can take one big loan to pay them off and reduce the interest burden.
Is a Personal Loan Taxable in India?
Now, the biggest question—"Do I have to pay tax on a personal loan?"
The Answer:
No, a personal loan is NOT taxable.
A personal loan is not considered income. It is borrowed money, so the Income Tax Department does not charge tax on it.
But there is one thing to remember: If you take a personal loan and don’t return it, then it may become taxable.
Example:
Suppose you take a personal loan of ₹5 lakh and don’t repay it. After a few years, the bank decides to waive off your loan (cancel it). In this case, the ₹5 lakh becomes your income, and you may have to pay tax on it.
Also, if you use a personal loan for business purposes, then you can claim a tax benefit. But if you use it for personal expenses, there is no tax benefit.
What Factors Should You Check Before Taking a Personal Loan?
A personal loan can be helpful, but if you don’t choose wisely, it can become a financial burden. Here are some important factors you must check before taking a personal loan:
1. Interest Rate
This is the most important thing. The interest rate decides how much extra money you have to pay back.
- If the interest rate is high, your EMI will be more, and you will pay a lot extra.
- If the interest rate is low, your EMI will be less, and you will save money.
Example:
Suppose you take a ₹3 lakh loan for 3 years.
- At 10% interest – You will pay around ₹9,700 EMI.
- At 15% interest – You will pay around ₹10,400 EMI.
This ₹700 extra per month seems small, but in 3 years, you will pay ₹25,200 extra!
2. Processing Fees
Many banks or nbfc charge a processing fee to approve your loan. This can be from 1% to 3% of the loan amount. Be carefull for this charge and analyse it before proceeding.
Example:
If you take a ₹2 lakh loan and the bank charges 2% processing fee, then ₹4,000 will be deducted, and you will get only ₹1,96,000 in your account. So, i am telling you to be carefull and ready. Loan is not a good Idea for every purpose.
3. Loan Tenure (Repayment Period)
Loan tenure means the time you get to repay the loan. It can be 1 year, 2 years, 3 years, or even 5 years.
- If you choose a shorter tenure, your EMI will be high, but you will pay less total interest.
- If you choose a longer tenure, your EMI will be low, but you will pay more total interest.
Example:
For a ₹5 lakh loan at 12% interest:
- 2 years tenure – EMI ₹23,537, total repayment ₹5,64,888
- 5 years tenure – EMI ₹11,122, total repayment ₹6,67,320
In a 5-year loan, you pay ₹1 lakh extra in interest!
4. Prepayment Charges
If you suddenly get extra money and want to repay the loan before time, some banks charge a prepayment penalty (extra fee for early repayment). Check if your bank allows free prepayment.
5. Credit Score Requirement
Your credit score (CIBIL score) is very important. This is a tool which bank and nbfc use to check your past performance with banks. A high score means the bank will give you a loan easily with a low-interest rate. A low score means the bank may reject your loan or charge a high interest.
Tip: Always pay your credit card bills and EMIs on time to maintain a good credit score (above 750).
6. Compare Different Banks
Never take a loan without checking several banks interest rates and performance. Always compare at least 3-4 banks or NBFCs (like Bajaj Finance, Tata Capital, etc.) to find the lowest interest rate and best offers. Dont fall in any rumors or advertisements.
7. Hidden Charges
Some lenders charge extra fees like:
- Late payment charges
- Insurance fees
- Loan cancellation fees
Always read the terms and conditions carefully before signing.
Fixed Interest Rates vs Floating Interest Rates – Which is Better?
When you take a personal loan, you get two types of interest rates:
1. Fixed Interest Rate
- This interest rate remains the same throughout the loan period.
- Your EMI amount is fixed every month. This will not change according to volatility in market.
- Good for people who want stability in EMI payments.
🔹 Example:
Raj takes a personal loan of ₹5 lakh at 12% fixed interest for 5 years. His EMI remains ₹11,122 every month for the full 5 years.
✅ Advantages of Fixed Rate:
✔ Predictable EMIs (No surprises).
✔ Easier for budgeting.
✔ Best when interest rates in the market are rising.
❌ Disadvantages of Fixed Rate:
✖ If interest rates in the market go down, you still pay the old higher rate.
✖ Higher than the starting rate of floating interest.
2. Floating Interest Rate
- The interest rate changes based on market conditions.
- Your EMI amount may increase or decrease over time.
- Good for people who can take risks and want lower rates.
Example:
Amit takes a ₹5 lakh loan at a 10% floating rate. After 1 year, the rate drops to 9%, so his EMI reduces. But after 2 years, the rate increases to 11%, so his EMI increases.
Advantages of Floating Rate:
✔ Usually lower than fixed rates in the long run.
✔ You benefit when interest rates fall.
Disadvantages of Floating Rate:
✖ EMIs are not predictable.
✖ If rates increase, you end up paying more.
Which One Should You Choose?
Choose Fixed Interest Rate If:
✔ You want stable EMIs.
✔ You don’t want to take risks.
✔ You think interest rates may increase in the future.
Choose Floating Interest Rate If:
✔ You are okay with fluctuating EMIs.
✔ You believe interest rates will decrease in the future.
✔ You are ready to take some risk.
Final Advice
- If you want peace of mind, choose fixed interest rates.
- If you want to save money in the long run, choose floating rates.
My Suggestion:
For short-term loans (1-3 years) → Fixed rate is better.
For long-term loans (5+ years) → Floating rate may save money.
Factors that Affect Personal Loan Interest Rates
When you take a personal loan, the bank or lender decides the interest rate based on different factors. Some people get loans at low-interest rates, while others get higher rates. Why does this happen?
Let me explain the key factors that affect personal loan interest rates in simple words.
1. Your CIBIL Score (Credit Score)
Your CIBIL score is the most important factor in deciding your loan interest rate.
- A high CIBIL score (750+) → Low-interest rate ✅
- A low CIBIL score (below 600) → High-interest rate or loan rejection ❌
Example:
- Ramesh has a CIBIL score of 800 → He gets a loan at 10% interest.
- Suresh has a CIBIL score of 580 → He gets the same loan at 16% interest.
Tip: Always maintain a good CIBIL score by paying EMIs and credit card bills on time.
2. Your Monthly Income
Banks prefer borrowers with a stable and high income. If you earn more, banks see you as a low-risk borrower and offer a lower interest rate.
Example:
- Priya earns ₹80,000 per month → She gets a loan at 10% interest.
- Ankit earns ₹25,000 per month → He gets the same loan at 15% interest.
Tip: If your income is low, try to increase your salary before applying for a big loan.
3. Your Employment Type
Banks give better interest rates to people with stable jobs.
- Salaried employees (Govt. & MNC employees) → Get lower interest rates.
- Self-employed individuals & freelancers → Get higher interest rates because of income instability.
🔹 Example:
- Amit is a government employee → He gets a loan at 9.5%.
- Rohan is a freelancer → He gets the same loan at 13%.
Tip: If you are self-employed, show consistent income and IT returns to get a better rate.
4. Loan Amount & Tenure
The amount you borrow and the repayment time also affect the interest rate.
- Higher loan amount → May attract a lower rate.
- Longer tenure (5+ years) → May attract a higher rate because of higher risk.
Example:
- Sunil takes a ₹10 lakh loan for 3 years → Gets 11% interest.
- Ravi takes a ₹10 lakh loan for 7 years → Gets 13% interest.
Tip: Choose a loan tenure wisely to balance EMI and interest cost.
5. Relationship with the Bank
If you already have a good relationship with a bank (salary account, FD, old loans), they may offer you a lower interest rate.
Example:
- Ramesh has a salary account in SBI for 10 years → SBI offers him a personal loan at 10%.
- Suresh is a new customer → SBI offers him 12.5% interest.
Tip: Apply for loans in a bank where you have an existing account for better deals.
Final Words – Should You Take a Personal Loan?
Take personal loan if you really need it and it for urgent or emergency cause. You should understand the risk appetite for repayment on time. But if you take it without planning, it can trap you in debt and this has became a trend in this digital India.
My Advice:
- Take a loan only when it is necessary and you dont have other choice (emergency, education, etc.).
- Always compare interest rates before choosing a lender. There are tons of NBFC which is ready to give loan
- They have processing fees and hidden charges. Many times you ignore this charges while taking loan.
- Choose a tenure that balances EMI and total interest.
- Maintain a good credit score for better loan offers.
- Try to prepay early to save on interest (if there are no charges).
I hope now you understand everything about personal loans and taxation. If you have any questions, feel free to ask. Always make smart financial decisions!
| Bank | Interest Rate (p.a.) | Processing Fee |
|---|---|---|
| HSBC Bank Persoal Loan | 10.15% - 16.00% | Up to 2% |
| HDFC Bank personal Loan | 10.85% - 21.00% | ₹6,500 + GST |
| IndusInd Bank Persoal Loan | 10.49% onwards | Up to 3.5% |
| ICICI Bank Persoal Loan | 10.85% - 16.65% | Up to 2% |
| Yes Bank Persoal Loan | 11.25% - 21% | Up to 2.5% |
| Kotak Mahindra Bank Persoal Loan | 10.99% and above | Up to 3% |
| Axis Bank Persoal Loan | 11.00% - 22% | Up to 2% |
| State Bank of India Persoal Loan | 11.45% onwards | Up to 1.50% |
| IDFC First Bank Persoal Loan | 10.99% onwards | Up to 3.5% |
| Tata Capital Persoal Loan | 11.99% onwards | Up to 5.5% |
| Home Credit Persoal Loan | 19.2% onwards | Up to 5% |
| Aditya Birla Capital Persoal Loan | 10.99% - 30% | Up to 3% |
| Bank of Baroda Persoal Loan | 11.40% - 18.75% | Up to 2% |
| Federal Bank Persoal Loan | 11.49% - 14.49% | Up to 2% |
| IIFL Persoal Loan | 12.75% - 44% | 2% - 9% |
FAQs
What is the lowest interest rate available on personal loans?
The lowest interest rate depends on the bank and your credit score. As of now:
- Bank of Maharashtra offers 10% p.a. (one of the lowest).
- IDBI Bank offers 10.60% p.a.
- HSBC Bank offers 10.15% p.a.
Tip: A higher CIBIL score (750+) and a stable income can help you get the lowest interest rate.
Personal Loan Calculator
I've already created a Personal Loan EMI Calculator for you. You can integrate it into Blogger using the provided HTML code.
How to Apply for a Personal Loan?
To apply for a personal loan:
- Check your credit score (CIBIL score) – A score above 750 increases approval chances.
- Compare interest rates from different banks and NBFCs.
- Gather required documents – Aadhaar, PAN, salary slips, bank statements, etc.
- Apply online via the bank’s website or visit the nearest branch.
- Wait for verification & approval – If eligible, the loan is disbursed within 24-48 hours.
Personal Loan Interest Rate in SBI
State Bank of India (SBI) Personal Loan Interest Rate:
- Starts from 11.45% p.a.
- Processing Fee: Up to 1.50%
- Loan Tenure: Up to 6 years
💡 Tip: SBI offers lower rates for salaried individuals with a stable income.
Personal Loan Eligibility
Eligibility depends on:
✅ Age: 21-60 years
✅ Employment: Salaried or self-employed
✅ Minimum Salary: ₹15,000 - ₹25,000 (varies by bank)
✅ CIBIL Score: 700+ for easy approval
✅ Job Stability: At least 1-year experience for salaried people
💡 Tip: A higher salary & lower existing debts improve your loan approval chances.
Personal Loan Kaise Milega? (How to Get a Personal Loan?)
Step-by-Step Guide:
✔️ Check Your Credit Score (CIBIL 750+ is good)
✔️ Compare Banks/NBFCs (Choose the lowest interest rate)
✔️ Prepare Your Documents (Aadhaar, PAN, Salary Slips, etc.)
✔️ Apply Online or Visit Branch
✔️ Wait for Loan Approval (Usually 24-48 hours)
✔️ Receive Funds in Your Bank Account
Tip: If you have a low credit score, apply with collateral or a guarantor to increase approval chances.
