1. A personal loan is given by a bank or an NBFC to an individual to meet any personal needs like funding a marriage, home renovation, vacation etc.
2. Since personal loans are not secured against any asset, the lender cannot recover the funds by selling anything. Hence, the rate of interest is higher than other secured loans.
3. Banks and NBFCs have set strict eligibility criteria concerning income, credit and employment history and past repayment capacity for availing personal loans.
4. A loan processing fee has to be paid besides interest and lenders can charge a prepayment penalty.
5. Sometimes, based on the relationship with the lender and financial history, the customer is given the facility of a pre-approved loan limit.