Personal loans provide a crucial lifeline to aspirational borrowers, especially when they are faced with difficulties and economic challenges in day-to-day life.
Personal loans are credit tools that assist borrowers in securing funds for meeting essential financial targets such as surgery costs, education expenses, indispensable house renovation, and other similar unavoidable tasks.
Growth slows, but demand remains
According to a report by PTI, personal loan growth slowed to 6% in Q4 FY25, a dip from previous years’ double-digit figures. This moderation is seen as a clear sign of growing borrower caution and tighter norms adopted by lenders to primarily facilitate credit discipline. This is important to help in bringing NPA’s of lending institutions under control.
Furthermore, the central bank has reduced the repo rate by 100 basis points since February, bringing it down to 5.50%. This very important move aims to lower borrowing costs, stimulate demand and boost the overall economy. Some financial institutions and banks have already passed on partial benefits by providing potential EMI relief for new borrowers.
Personal loan rates by top banks (as of July 1, 2025)
| Banking institution | Interest rate range (as of July 1, 2025) |
|---|---|
| HDFC Bank | 10.50% – 16.50% p.a. |
| ICICI Bank | 10.75% – 17.00% p.a. |
| State Bank of India (SBI) | 10.40% – 15.15% p.a. |
| Kotak Mahindra Bank | 10.99% – 18.25% p.a. |
Note: The above rates are illustrative in nature. Please refer to the official websites of respective banks for the latest and most accurate interest rates.
Digital lending made more transparent
Recent guidelines issued by the RBI now mandate that all lenders clearly disclose the total borrowing costs associated with their loan products. Costs such as processing fees, annual percentage rates, upfront charges or any other hidden charges to aspirational borrowers.
This simple yet powerful step boosts transparency and assists in making borrowing a pleasant experience for borrowers. Further, borrowers’ rights are protected as they are prevented from falling for unclear terms, conditions, and complicated expenses.
Major benefits for borrowers
- Quick disbursal and no collateral: Most personal finance products are unsecured in nature and are generally processed within 1-3 working days.
- Flexible repayment: Depending on their repayment potential, past payment history, and cash flows, borrowers can choose tenures between 1 and 5 years.
- Refinancing options: Borrowers may even focus on refinancing existing fixed-rate loans to save on EMIs.
- Credit score improvement: Timely repayment of personal loans helps borrowers improve their credit scores, making them eligible for better financial products in the future.
- Supports diverse financial goals: Whether it is consolidating high-interest debt, covering IVF treatment, or planning a child’s overseas education, personal loans offer tailored solutions for various life priorities.
What are the risks to watch out for?
There are several serious risks involved with borrowing money. These must be carefully evaluated before applying for any loan product.
Elaborating on the same, Sudhir Khot, Financial Therapist, Founder of Financial Fitness, says “Personal loans are often driven by emotions—peer pressure, instant gratification, or lifestyle upgrades. This impulsiveness can derail financial planning and lead to long-term stress. Awareness and financial discipline are key.” Keeping the same in mind, here are some important risks to watch out for:
- Poor credit scores can increase interest rates and repayment costs.
- Missing EMIs can be a big negative for your credit score.
- Fixed-rate loans do not change much with falling repo rates.
- Prepayment charges may be imposed if you close your loan early.
- Extensive borrowing can result in debt traps.
Note: The risks discussed above are illustrative in nature. They depend on factors such as your lender, credit score, associated terms of your loan along with your repayment history.
Looking ahead
Therefore, due to improvements in transparency and technology, easing of repo rates, and flexible repayment options, personal loans are expected to remain a preferred credit option for borrowers in the country going forward.
To stay financially healthy, borrowers should carefully compare offers, evaluate repayment capacity, discuss with certified financial advisors, and avoid over-leveraging.
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