12 Reasons for Personal Loan Application: Understanding Purpose of Loan

Even though there are a variety of lending options available, 77% of working professionals in India choose to apply for Personal Loans to cover a number of financial demands from time to time. They are popular in India because of their flexibility, swift approval, and minimal documentation. 

Versatility is perhaps the biggest benefit of Personal Loans, which gives borrowers complete freedom to use the funds flexibly. In this blog, we'll go over the 12 most popular reasons people apply for Personal Loans.  

Common Purposes for a Personal Loan Application

According to a study, over 25% of borrowers used Personal Loans to cover travel expenses in H1 2025. Some use these loans for travel and holidays, and some for property purchases or renovations. These are just some of the reasons why borrowers apply for Personal Loans.

Lender Preference Rankings

Loan Purpose	Public Sector Banks	Private Banks	NBFCs	Fintech Lenders
Medical Emergency	Highly Preferred	Highly Preferred	Preferred	Preferred
Debt Consolidation	Preferred	Highly Preferred	Preferred	Highly Preferred
Wedding Expenses	Neutral	Preferred	Highly Preferred	Preferred
Travel/Vacation	Cautious	Neutral	Preferred	Preferred
Business Purposes	Restricted	Cautious	Preferred	Neutral
Home Renovation	Highly Preferred	Highly Preferred	Preferred	Neutral
Education/Courses	Preferred	Preferred	Highly Preferred	Preferred
Lifestyle/Gadgets	Neutral	Cautious	Preferred	Highly Preferred

 

The following are scenarios where Personal Loans can prove beneficial:

1. Cover Emergency Expenses

Managing emergency expenses is one of the most popular Personal Loan objectives among borrowers. Borrowers apply for personal loans to settle outstanding bills, cover medical expenses, renovate a house, make unexpected car repairs, and more.

• Medical emergencies
• Urgent home repairs
• Vehicle repairs
• Unexpected travel
• Education fees

Personal Loans require minimal documents for processing, as there is no collateral required. This speeds up the process and provides easier and faster access to funds. This is why Personal Loans, especially those with minimal verification and speedy disbursement, become a viable choice when the need is urgent.

2. Home Improvement and Renovation

Whether it is renovating your interiors or installing new flooring, home renovation is not just expensive but can also be an emergency expense, especially if safety is a concern. If you don't have the cash readily available, a Personal Loan helps provide the necessary financing you need for home improvement.

You can use the Personal Loan to repaint your walls, transform your kitchen, upgrade appliances and more. Instead of emptying your financial resources or risking long-term assets, a Personal Loan for home improvement can be an effective way to cover these expenses.

Also Read: Maximising Your Savings: Tax Benefits of Home Renovation Loans

3. Higher Education Fees

Higher education expenses are soaring in India, making it difficult for many to access quality education either for themselves or their family. These expenses are substantial if the dream is to study abroad. Under such a situation, you can opt for a Personal Loan to ensure the timely payment of educational expenses, such as:

• Tuition fees
• Study material
• Exam fees
• Travel expenses
• Buying laptop

With the minimal documentation and quick disbursal, you use Personal Loans to fund your education. You can also use it to apply for a professional course or pursue certification for which educational loans are not easily available.

4. Debt Consolidation with  Low-Interest Rate Loan

A Personal Loan with a lower interest rate can be utilised to combine several previous debts, such as other personal loans or credit card liabilities, into a single loan. This can simplify payments by combining numerous EMIs into a single fixed payment each month, potentially lowering overall interest expenses. 

Debt consolidation with a Personal Loan can also help with cash flow management and may boost your credit score if you make your outstanding repayments on time.

5. Covering Wedding Expenses

An average Indian wedding can cost between ₹5 lakhs to ₹20 lakhs, depending on the extent of the celebration. This includes venue bookings, catering, transport, décor, and photography.

When finances run low, many couples and families turn to Personal Loans to pay for wedding-related expenses. These unsecured loans provide speedy disbursement, minimal documentation, and the freedom to repay via fixed EMIs, making them a popular solution for managing large wedding expenses without sacrificing dreams.

What is the best part? There are normally no end-use constraints for Personal Loans for wedding expenses, so funds can be allocated wherever they are most needed.

6. Medical Expenses

Medical emergencies don't come knocking on the door, but they are always expensive. Whether you need funds for dental care, a big surgery, emergency treatments, or medical rehabilitation, borrowing money from creditors can solve all your problems.

The Personal Loans are unsecured; therefore, you do not require collateral and can pay off bills for your care. All you need is a stable monthly income, a good credit score, and a clean credit history for quicker loan approval.

7. Business-related Expenses

A Personal Loan is a flexible, collateral-free choice for financing a number of business-related needs, such as buying machinery, investing in digital marketing, employing staff members, or filling short-term working capital shortfalls. Unlike typical business loans, Personal Loans have flexible eligibility criteria and faster disbursement time.

8. Down-payment for House

A Personal Loan helps you cover the cost of a down payment if you don't have enough cash for a down payment on a house. It provides immediate access to funds without requiring collateral, making it an ideal choice.

However, you must ensure you can afford both EMIs because Personal Loans have higher rates of interest than home loans. Many lenders, such as Poonawalla Fincorp, offer various Personal Loan solutions to meet these demands.

9. Big Purchases

Personal Loans are a good way of funding major purchases since they are fast and do not need collateral. It implies that there would be no danger of losing your valuable assets. They offer constant interest rates and repayment schedules, which make budgeting and financial planning easier, as they allow predicting the monthly EMIs.

• Cars and two-wheelers
• Television, Refrigerators, washing machines, air conditioners, and more
• Furniture
• Luxury goods

As opposed to credit cards, personal loans tend to have lower interest rates, which is economical when it comes to big-ticket purchases like home repairs, appliances, or devices. They are also flexible in terms of fund usage, as you are not limited to how they use the loan amount.

10. Travel and Vacation

A Personal Loan is an excellent way to fund your travel plans, as it offers quick money to cover different vacation costs. The loan amount can be used to pay for airfare, hotel accommodation, tour packages, local transportation, food, and shopping, among other travel expenses.

Personal loans have flexible tenure, which may be 12 to 84 months, and you can pay the amount in easy EMIs. Personal loans with competitive interest rates as low as about 9.99% per annum and quick online approvals make dream vacations possible without having to dip into your savings.

11. Build a Good Credit Score

A Personal Loan can also boost your credit score, as you will be able to prove your creditworthiness to the lenders. By paying EMIs on or before the due date all the time, your repayment history will be strong. This will have a positive effect on your credit report.

A good credit score will allow you to obtain better loan terms, lower interest rates, and greater future loan opportunities. Personal loans also help you to have a varied credit mix, which is looked upon positively by the credit bureaus.

12. Special Occasions

A Personal Loan can also be used for your dream vacation or to organise a grand party for your marriage anniversary. This way, Personal loans help to fulfil your dreams or celebrate the special moments of your life. If you are planning to celebrate any special occasion, apply for a loan in advance to get the funds on time without any stress.

In India, travel has overtaken traditional needs like home renovations and medical expenses as the most common reason for taking out personal loans. This showcases a notable shift toward financing vacations and leisure activities.

Gaps in Personal Loan Applications

While personal loans are known for their flexibility, there are a few important considerations borrowers should be aware of:

1. Loan Purpose Restrictions by Lenders

Although most lenders allow personal loans for a wide range of legal purposes, some may impose restrictions. For example:

• Gambling, speculative investments, and cryptocurrency trading are typically prohibited.
• Business-related expenses may not be allowed by certain lenders who specialise in consumer lending.

It’s important to disclose your intended loan purpose accurately during the application process, as misrepresentation can lead to rejection or future complications.

2. Loan-to-Value (LTV) and Loan-to-Income (LTI) Ratios

While personal loans are unsecured and don’t involve collateral (hence, LTV isn’t directly applicable), the Loan-to-Income (LTI) ratio plays a crucial role. As per the latest RBI guidelines:

• Your total EMIs (including the new loan) must not exceed 50% of your monthly income.
• Lenders now verify existing debt obligations more rigorously, and self-declaration is no longer sufficient.

This means your loan eligibility and amount may vary depending on your income and existing liabilities.

3. Regulatory Restrictions

The Reserve Bank of India (RBI) has introduced stricter norms to ensure responsible lending:

• Risk weights for unsecured personal loans have increased from 100% to 125% or more, depending on borrower risk. 
• Credit score-based caps now influence loan amounts and interest rates. For example, borrowers with scores below 650 may face limited eligibility or higher interest rates.
• Digital lending platforms must now follow transparent borrower matching and display standardised loan offer details.

To Conclude

Understanding the purpose of a Personal Loan plays an important role in determining your eligibility, loan amount, and repayment terms. From debt consolidation to major purchases, the financing helps you meet all your Personal Loan objectives, as there are no end-use restrictions. 

No matter the purpose, Poonawalla Fincorp offers a collateral-free and low-interest Personal Loan that helps you meet all your financial needs. With a loan amount of up to ₹50 Lakh, you can cover all the expenses without worrying, while the interest rate starting at 9.99% makes the loan affordable. Apply for the Personal Loan now!

Frequently Asked Questions 

Does applying for a Personal Loan affect your credit score?

No, applying for the Personal Loan itself doesn't affect your credit score. However, your credit score may be reduced if you fail to repay the loan or miss EMIs.

Why is the home loan interest rate lower than a Personal Loan?

A home loan is a secured loan that the lender provides while keeping your property as collateral. This provides a certain degree of protection to the lender. Personal Loan interest rates are higher because it is an unsecured type of loan.

What is debt-to-income ratio in a Personal Loan?

Debt-to-income (DTI) ratio in a Personal Loan is a financial measure that calculates the total monthly debt payments to the gross monthly income. It reveals how much of your income is used to pay off current debts. Lenders use it to determine your ability to afford more loan payments.

Can I specify 'general expenses' as the purpose of my Personal Loan?

Yes, many lenders accept "general expenses" as a legitimate purpose. However, being more specific, for example, medical bills, wedding expenses, or home repairs, can help boost your loan approval chances and build confidence with the lender.

Can I use the Personal Loan amount for any purpose?

Yes, Personal Loans are flexible and can be used for a variety of purposes, including debt consolidation, financial crises, education, travel, and home improvement.