Key Features of Personal Loans

Charlotte Miller

Updated on:

Personal loan is a go-to credit option for many consumers, especially in times of financial emergency. It can be availed by salaried as well as self-employed individuals for any purpose without pledging any collateral/security. This loan facility also comes with fewer documentation and quicker disbursal than most alternatives. To know more, here are the key features of personal loan. 

Unsecured nature

Personal loan is unsecured in nature, which implies that applicants do not need to furnish any collateral or security at the time of loan application. Hence, lenders assess personal loan applications primarily on the basis of the applicants’ credit score, occupational profile, monthly income and other aspects of their credit profiles.

While the unsecured nature of this loan makes its processing quicker, it also increases the credit risk for lenders, leading them to adopt a more stringent approach during the loan evaluation process.


One of the best features of personal loans is that it has no end use restriction. Borrowers can use the loan proceeds to meet any of their personal or business requirements, except for any speculative activities, such as for financing their wedding, travel, urgent medical expenses, home renovation, and education. The loan can also be used for purchasing latest electronic items and other consumer goods, consolidating multiple high-interest debts and for managing day-to-day expenses.

Pre-approved offers

Many lenders offer their select existing customers pre-approved instant personal loans based on their credit profiles. As such loan offers are given to select existing pre-qualified customers, they require minimal to no documentation and are disbursed instantly or within a few hours of making the loan application. Hence, consumers facing financial emergency should apply for such pre-approved instant personal loans online, if eligible, and meet their financial requirements quickly.

Quick loan processing

The time taken for approving and disbursing a personal loan is usually quicker than the time taken for processing secured loan options like home loan and car loan. Many lenders even claim to disburse personal loans within a week of receiving the loan application. However, with many lenders adopting digital end-to-end onboarding process, the turnaround time for disbursing a personal loan has reduced to a few days.

Fixed and floating rate options

Personal loans can be availed at both fixed and floating rate of interest. While most public sector banks usually offer personal loans at floating interest rates, many private sector banks and NBFCs offer personal loans at fixed interest rates. The interest rates of floating rate personal loans can change anytime during the loan tenure as these rates mirror movements of the linked external benchmark rates such as repo rate, T-Bill, etc. In fixed rate personal loans, the interest rates do not change during the loan tenure.

Minimal documentation

Personal loan is an unsecured credit option and therefore, most lenders do not require a long list of documents to process the loan application. The documents required usually are those that proves the applicant’s identity, income and address. As income proof for salaried applicants, lenders usually require salary slips and bank account statements of the last 3-6 months. In case of self-employed applicants, lenders usually require income tax returns (ITR), audited financial statements and bank statements or passbook of their current/savings accounts of the last 1 year.

Flexible repayment period

The tenure for personal loans usually goes up to 5 years. Some lenders, however, offer the loan tenures of up to 7 years. Banks and NBFCs usually fix tenures of your personal loans after determining your repayment capacity. They usually prefer approving personal loan applications of those having their EMI/NMI ratio (including the EMI of the proposed personal loan) within 60% of their net monthly income. Anyone exceeding this limit can extend the tenure of the proposed personal loan. Doing so will not only reduce their EMI burden but will also boost their chances of availing the loan.


As mentioned above, personal loans come with great features and benefits for both salaried and self-employed individuals. However, when looking for these loans, consumers should check and compare interest rates and features of multiple personal loan schemes from multiple banks and NBFCs. They should apply for the loan offer that best suits their requirements in terms of overall cost of borrowing, repayment capacity and disbursal time.