How does a personal loan work?

A personal loan is a form of unsecured credit that lets you to borrow a fixed sum from a financial institution, which you then repay in equated monthly instalments (EMIs) over a predetermined tenure. The process begins with an application, where you submit necessary documents and the lender assesses your creditworthiness, income, and repayment capacity.

Once approved the loan amount is typically handed out directly into your bank account. You are then required to repay the principal amount along with interest, calculated at a fixed rate, through monthly EMIs. The tenure typically ranges from one to several years, and the EMI amount depends on the loan amount, interest rate, and chosen tenure. Timely repayment is crucial as it influences your credit score as well as future borrowing ability. Most personal loans usually do not require collateral making them accessible but often carrying higher interest rates compared to secured loans.

You can use a personal loan for almost any purpose, such as medical expenses, home renovations, travel, or debt consolidation. Many lenders now offer quick digital approval as well as disbursal making the process faster and more convenient. Before applying, always be sure to compare offers from different lenders, check processing fees, and read the terms carefully to avoid hidden charges or prepayment penalties.