What is the Personal Loan?
A personal loan is unsecured — there is no house or car backing it — so lenders price the extra risk into the rate. Typical rates run 11% to 24%, versus 8–9% for a home loan, and tenures are short at 1–5 years.
The number most borrowers miss is the processing fee, usually 1–3% deducted upfront. You pay interest on the full sanctioned amount but only receive the balance, which makes the effective cost higher than the quoted rate.
Formula & worked example
Standard reducing-balance EMI, with the fee taken out of disbursal:
Amount credited = P − processing fee
True cost = Total interest + fee
Worked example: ₹5,00,000 at 14% for 3 years → EMI ≈ ₹17,089, total repaid ₹6.15 lakh, interest ₹1.15 lakh. With a 2% fee (₹10,000) you receive only ₹4.90 lakh but repay on ₹5 lakh, so the real cost is ₹1.25 lakh — about 25% of what you actually got.
How to use this personal loan calculator
- Enter the loan amount you need in hand — remember the fee reduces what is credited.
- Use the exact rate in your offer; advertised "starting from" rates apply only to top credit profiles.
- Keep the tenure short. Personal loan interest compounds quickly at these rates.
- Add the processing fee to see the true cost, then compare that against alternatives.
Smart tips
- Before taking a personal loan, check a top-up on an existing home loan — it is often half the rate.
- A 2% processing fee on a 1-year loan is equivalent to roughly 4% extra annual interest. Always negotiate it.
- Never take a personal loan to invest. No safe investment reliably beats a 14% guaranteed cost.
- Prepay early if allowed. Interest is front-loaded, so prepaying in year one saves far more than in the final year.
- Rates are heavily credit-score driven — improving a 690 score to 760 can cut your rate by 3–4 percentage points.
Frequently asked questions
What is a good personal loan interest rate?
Anything at or under 12% is competitive for a salaried borrower with a 750+ score. Above 18% you should seriously consider alternatives such as a gold loan or a secured top-up.
Why did I receive less than my sanctioned amount?
The processing fee, GST on it, and sometimes insurance premiums are deducted from disbursal. You still pay interest on the full sanctioned amount, which raises the effective rate.
Can I foreclose a personal loan early?
Most lenders allow it after 6–12 EMIs, typically with a 2–5% foreclosure charge on the outstanding. Even with the charge, early closure usually saves money on a high-rate loan.
Does a personal loan hurt my credit score?
Applying triggers a hard enquiry and multiple applications in a short window look risky. Once running, on-time EMIs help your score; unsecured debt above 30% of your limits hurts it.
Personal loan or credit card for an emergency?
A personal loan is almost always cheaper. Credit card revolving interest runs 36–48% a year, versus 11–24% for a personal loan.
What is the EMI for a ₹5 lakh personal loan?
Personal-loan rates are higher than home loans. As a guide, ₹5 lakh at 12% p.a. is about ₹11,122 a month over 5 years, or about ₹16,600 over 3 years. Enter your actual rate and tenure above.
Can I get a personal loan without a salary slip?
Some lenders accept bank statements, ITRs or Form 16 as income proof instead of a salary slip, especially for self-employed applicants. Terms and rates vary — a regulated lender will still require some proof of income.
Why is a personal-loan EMI higher than a home-loan EMI?
Personal loans are unsecured (no collateral) and usually shorter in tenure, so they carry higher interest rates and are repaid faster — both of which raise the monthly EMI versus a home loan of the same amount.
Want the theory behind the numbers? Read our loan guides on the Money Blog.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 4 Oct 2026. How we check these numbers.