A personal loan is a type of consumer loan provided to individuals to meet their obligations. In other terms, it is also called a Mortgage Loan. The loan is provided to fulfill the personal financial requirement or to meet their contingent liabilities. With time, the demand for personal loans is increasing trend due to changes in customer preferences and wants. Banks and financial institutions have been financing personal loans to meet the increasing demand of customers. So here we will discuss in detail how to get a personal loan and what its criteria for eligibility which will help the reader for decision making regarding personal loans.

Image of a person reviewing loan terms and conditions.


Understanding Personal Loans:

Before getting into further details, it is important to understand personal loans and how they differ from other loan facilities. This will help readers to determine their exact loan requirements before applying to a bank. The common use of personal loans is to meet emergency personal expenses or full their social obligations. The key features of personal loans are:

  1. To meet the personal requirements of the customer.
  2. Loan can be financed up to a maximum of 15 years. Tenure of a Loan may differ from Bank to  Bank. 
  3. Bank may charge a higher interest rate compared to other loan products.
  4. Limit has been restricted to NPR 50 Lakhs for unspecified purposes. One can avail of more than the threshold limit if the purpose of the loan is specific. For example: Medical Expenses. In such instances, payments are made directly to the beneficiary account.

 Researching Loan Options:

Before applying for a personal loan, research and compare loan products from different lenders. Things to be considered before making any decision:

Chart comparing interest rates and fees of various loan products.

  1. Interest Rate: One should be aware of the interest rate that will be applied to your loan facility. Every bank and financial institution offers various interests in their products. The interest rate will be determined and evaluated by calculating the risk involved and the tenure of the facility. Further, the applicable interest rate will be the Current Base Rate + premium, and the premium is determined by the risk factor. In common words,  the higher the base rate higher the interest rate. In the context of Nepal, A-class commercial banks are offering lower interest rates compared to development banks and finance.
  2. Service Charge/Management Fee/Loan Fees: "The term 'loan fees' refers to charges imposed by a lender for providing a loan to their customer." A class bank charges 0.75% of the loan limit which is lower than development bank and finance. You may also consider this factor for your loan decision.
  3. Repayment Terms:  Personal Loans can be of both a terminating and revolving nature. It means you repay your loan on an EMI basis or pay interest only. Interest payment option is only allowed on overdraft/revolving nature loans and it will be reviewed yearly basis by charging 0.15% renewal fees. One may decide their repayment terms based on their income and cash flow.
These are the major things to be taken into consideration before you make any loan decision. 

Meeting Eligibility Requirements:

Image of a checklist with eligibility criteria listed (age, income, etc.).

There are some criteria to be eligible for a personal loan in Nepal:

1. Nepalese citizens age from 18 years to 75 years on maturity.
2. Any individuals or self-employed having a valid taxable source of income.
3. Self-employed running business for at least 2 years.
4. PAN mandatory for loans above NPR 25 Lakhs and above.
5. Real Estate Collateral has a minimum of 8ft of road access and the property should be from the undivided family members.
6. Clean CIC report in case of multibanking.

How can you Improve your eligibility:

Illustration showing factors that influence eligibility, such as stable income and good credit history.

You can improve your eligibility if you have:

1. Stable Source of Income.
2. Sufficient Cash Flow with satisfactory account transactions.
3. Regular and Timely Past Repayment History.
4. Profitable business with satisfactory turnover.
5. Good Credit Score in CICL report.
6. Maintain Financial Discipline.

All these factors help to improve your creditworthiness. 

Gathering Required Documents:

Image of a person organizing documents in a folder or envelope.


After you decide to apply for a personal loan from the Bank, here are some documents you need to submit to the bank for credit decisions.

Documents of personal Info: Documents like citizenship and photos of customers and their family members for identification and address verification.

Income Related Documents:If you are a salaried employee, you need to submit your latest salary certificate along with supporting bank statements. Submit at least six months' statements showing the credit of your last six salaries. If you have experience then you can also provide your last employment experience and certificate. PAN and TAX statements are compulsory for salaried employees. If you are self-employed, you need to submit your business registration documents and PAN. Additionally, you must provide audited/provisional financial reports of the previous year, along with a tax clearance certificate. In case you have processed your business transactions through a bank account, you should also submit your bank statement.

Collateral Documents:Land Ownership documents with supportive documents that disclose the source of ownership transfer. 

Applying for a Personal Loan:

Image of a person filling out a loan application form online.


Once you have arranged all the necessary documents, take them to the bank to apply for a personal loan. This will help the bank officials to make prompt credit decisions. After assessment, of your documents, the loan limit will be decided based on the following criteria:
  1. Income: The Loan limit shall be determined by the income of the customer. As per regulatory authority, the Debt Burden ratio should be within 50% of Gross Income. It means if your monthly gross is NPR 50,000/- and your monthly EMI should not be above NPR 25,000/-. The same applies to other income too.
    2. Debt Burden Ratio
    Particulars Amount
    Gross Monthly Salary (A) NPR 50,000/-
    50% of Gross Income NPR 25,000/-
    Monthly EMI obligation(B) NPR 20,000/-
    Surplus NPR 5,000/-
    Debt Burden Ratio(B/A) 40%
  2. Repayment Tenure: The tenure of your loan is determined based on your cash flow. If the tenure is higher, the monthly EMI will be lower, and if the tenure is lower, the monthly EMI will be higher. Generally, personal loans are provided for a maximum of 15 years. You can calculate your EMI from Here.
  3. Collateral Value: To avail of a personal loan facility, the bank will require you to mortgage your property as a risk minimization measure. As per regulatory guidelines, the Loan to Collateral Value ratio is capped at 50%. This means that if your property is valued at NPR 50 lakhs, your loan limit will be restricted to NPR 25 lakhs, even if you have a higher monthly income.

Loan to Value Calculation
Particulars Amount
FMV of Land and Building NPR 50,00,000/-
50% of FMV NPR 25,00,000/-
Eligible Loan Limit NPR 25,00,000/-
FMV Calculation 70% Commercial Rate + 30% Government Rate

Loan Approval and Disbursement:

Image of a person receiving funds in their bank account after loan approval.


Once the credit limit has been determined, your application will undergo an approval process. The bank may request additional documents and perform an inquiry to verify reliability. If any discrepancies are found during the approval process, your application may be denied and your proposal rejected.

You will receive a notification once your proposal is approved. Following this, the post-approval process will commence. Once all necessary legal formalities and mortgage processes are completed, the loan amount will be disbursed into your account.

Managing Repayments:

Infographic showing the process of setting up automatic loan payments.

After receiving the loan, it is your responsibility to use the funds in the manner specified earlier. The bank will monitor the end use of the funds to ensure that they are not misused. If any misuse is found, the bank may immediately recall the loan. Timely repayment of the loan as specified helps maintain your creditworthiness and increase your credit score. If you fail to comply with the terms and conditions agreed before bank may process for legal action for recovery.

Getting a loan is not difficult, but using it wisely and making regular payments according to the terms and conditions can help improve your creditworthiness. This will be mutually beneficial for both the lender and the borrower and will help in fostering a long-lasting relationship.