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Personal loans have become a preferred financial tool for individuals aspiring for swift and flexible availability of funds, without tying up their assets. Whether you are covering emergency medical expenses, wedding costs or consolidating high interest debt, personal loans stand out against alternatives such as home loans, credit cards or gold loans.
Here is why personal loans are often a smarter choice:
1. Quick approval and disbursal
Most personal loans are processed and released within 24-48 hours, thanks to digital first lending platforms. The release of funds is subject to satisfactory submission of relevant documentation. This makes these loans ideal for urgent financial needs, unlike home loans or education loans that often involve weeks of paperwork, background verification and approval delays.
2. Flexible usage
One of the biggest benefits of a personal loan is its unrestricted usage feature. Whether it is a medical emergency, a family trip or higher educational expenses, borrowers are free to utilise the personal loan funds however they choose unlike car or home loans which are bound to their specific objectives.
3. No collateral required
Personal loans are unsecured in nature i.e., they do not require collateral or the borrower to pledge assets such as gold, property or other prior investments. This lowers the overall risk for individuals who want to preserve their valuable holdings. Still it is crucial to keep in mind that as no collateral is required for personal loans, to compensate for the same the interest rates applicable higher in comparison with other collateral based loans.
Also Read | Why we borrow for emotional purchases — The hidden psychology explained
4. Fixed interest rates and EMIs
Most of the personal loans come with fixed interest rates, resulting in predictable monthly instalments. This helps in efficient planning and budgeting especially when compared to credit cards with fluctuating interest rates and repayment bills. Furthermore, as a sensible borrower it is your responsibility to ensure that your personal loan EMI does not exceed 40% of your monthly income.
5. Minimal paperwork
Applying for and securing a personal loan usually involves submitting just basic documents such as identity, income and address proof, without the need for collateral verification or property related papers.
The entire process of personal loan application now-a-days takes place digitally i.e., through the official websites of leading lending platforms and hence require minimal paperwork. Basic documentation such as Aadhaar card, PAN card along with other identification related documents are submitted online and then checked and approved by banks before releasing funds.
6. Improves credit score
If repaid on time, personal loans can assist you in building and improving credit history, thereby boosting your credit score and future loan eligibility. This helps in improving access to credit at easier terms and conditions. A high credit score i.e., any score of over 750 is considered as a safer lending signal by banks and financial institutions.
7. Competitive interest rates
For applicants with a healthy credit profile, consistent repayment history, personal loans can be significantly cheaper than credit cards with interest rates starting from 10% per annum.
Personal loan interest rates 2025
BankInterest rate (per annum)HDFC Bank 10.90 – 24.00%ICICI Bank10.80% onwardsKotak Mahindra Bank 10.99% onwardsState Bank of India 10.30 – 15.30%Bank of Baroda10.40 – 18.20%
Note: The interest rates mentioned above are illustrative and subject to change based on the lender’s policies and applicant’s credit profile. Please check with the respective bank for the latest rates.
8. Customisable repayment tenure
Personal loans generally provide flexible repayment terms ranging from 12 to 60 months, allowing the borrower to choose EMIs that match their cash flow, comfort and repayment capacity.
Also Read | Pre-approved vs regular personal loans: Key differences you must know
Hence, with fast access to funds, no asset risk, and flexible terms, personal loans present a fairly convenient, all-purpose financing solution. However, since they are unsecured, personal loans usually come with higher interest rates than secured loans. Still, as a prudent borrower, you should always compare lender offers and discuss with a certified financial advisor before applying for any particular loan product.
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