A personal loan offers easy access to financing when most needed, especially for supporting medical bills, education needs, home repairs, or other expenses. These loans are easy to get, but they come with the responsibility of consistently paying an Equated Monthly Instalment (EMI) on time. Loan amount, however, isn’t the only important thing to consider. There are different things to know before taking personal loans, like charges, the cost of borrowing, and other things. In this blog, we will understand what to consider before applying for a personal loan.
Here are some of the most important things to know before taking personal loans that will help you protect your financial health in the long run:
1. Check Why You Need the Loan
The first step is to be clear about why you need the loan. A personal loan should be taken only for genuine needs. Ask yourself a few simple questions:
It could be a good decision if the loan is for an emergency or for a long-term benefit. However, if the reason is not that important, it might add unnecessary stress to your monthly budget and increase the total interest you pay.
2. Understand Your Debt-Paying Capacity
Before applying for a loan, you must check how much you can comfortably repay every month. To calculate the EMI that you can pay comfortably every month, you must consider the following factors:
A simple rule is that all of your EMIs combined, including the new loan, should not be more than 40% of your monthly income. If it crosses that limit, managing basic expenses may become difficult, let alone repaying the loan.
3. Know the Additional Charges
Most borrowers focus only on the interest rates when applying for a personal loan. However, there are a lot of other charges that decide the cost of borrowing, including:
The additional or hidden fees can increase the total cost of borrowing. Before taking a loan, carefully read all the terms and ask the lender about every charge. Make sure there are no hidden fees. This is an important part of what to consider before personal loan selection.
4. Check the Loan Tenure
Loan tenure is the number of months or years it takes to repay a loan. A longer tenure lowers your monthly EMI but increases the total interest you pay. A shorter tenure raises your EMI amount but reduces the overall interest cost. Here are the tips you can follow to choose the right tenure:
5. Understand Your Credit Score
Your credit score plays a major role in personal loan approval. A strong score shows financial discipline and gives lenders confidence to approve your loan. With a good credit score, you can also get lower interest rates. A low score may lead to higher interest or even rejection of your application. Here is how you can improve your CIBIL score:
6. Check the EMI Using a Calculator
The key benefit of knowing your EMI beforehand is that you can plan your repayment accordingly. This is where a personal loan EMI calculator proves most useful. Here is how the calculator helps you:
7. Read the Terms and Conditions Carefully
Most borrowers overlook terms and conditions because they seem long and confusing. However, you should never ignore them, as they include important details, like the following:
Reading terms and conditions carefully protects you from unpleasant surprises. You will know exactly what you are signing up for. If something is unclear, ask the lender before finalising your application.
8. Consider the Total Cost, Not Just the EMI
A low EMI may seem attractive, but it can cost you more in the long run. A longer tenure lowers your monthly payments, but the total interest you pay becomes much higher. Always calculate the total cost of the loan. This includes:
9. Avoid Overborrowing
Personal loans are easy to get, so borrowers often borrow more than they need. Extra borrowing can:
A personal loan is a useful financial tool if used wisely. It gives access to cash when you need it most, but also comes with responsibility. To turn it into a financially wise decision, you must always consider interest rates, EMIs, charges, loan tenure, and your repayment capacity.
By knowing things to know before taking a personal loan, you can choose a loan that fits your needs without harming your finances. For a flexible and reliable option, you can explore personal loans from DMI Finance, offering competitive interest rates and a loan amount of up to ₹10 lakh.
1. Will taking multiple small personal loans affect my credit score?
Yes, too many loan applications or multiple active loans can lower your credit score and reduce your chances of future approvals.
2. Can I change my EMI amount after the loan has started?
Some banks or NBFCs allow EMI changes through restructuring, but it depends entirely on their policies.
3. Is it possible to get a personal loan without a stable income?
It isn’t easy, but you can get a personal loan without income. You can add a guarantor, provide stable transactions, or provide collateral.
4. Should I take a higher personal loan if I expect a salary hike soon?
Not necessarily; it’s better to take a loan based on your current income, not future expectations.
5. Do banks or NBFCs check my job stability before approving the loan?
Yes, many banks or NBFCs prefer applicants with steady employment and a consistent work history.
6. What happens if I miss one EMI by mistake?
You may face a penalty, and your credit score can drop if the delay is reported to credit bureaus.
7. Can I negotiate loan terms with the lender?
Yes, you can negotiate interest rates or charges, especially if you have a strong credit profile.
8. Can my loan be approved faster if I provide extra documents?
Yes, giving all required documents clearly and on time can speed up verification and approval.
| Personal Loan of Different Amounts | ||
| ₹50,000 Personal Loan | ₹1 lakh Personal Loan | ₹2 lakh Personal Loan |
| ₹3 lakh Personal Loan | ₹4 lakh Personal Loan | ₹5 lakh Personal Loan |
