Top 5 Things to Follow Before Taking Personal Loan

When it comes to funding your personal, professional, and emergency needs in a jiffy, look no further than an unsecured personal loan in India. Not only is this collateral-free and offers a high-value sanction, but also offers flexible repayment terms that help you pay it off conveniently. Furthermore, an online personal loan offers quick approval with which you can address your urgent expenses and requirements without compromise or delay.

However, applying for a personal loan in India without doing adequate research and checking important terms can hurt your finances. Here are 5 essential must-dos to take note of before you sign up for a personal loan.

Know The Difference Between Flat and Reducing Balance Interest Rates

Lenders calculate interest on your personal loan in India based on two methods: flat interest and reducing balance interest method. In case of flat interest method, a lender calculates interest on the total sanction for the entire tenor without accounting for the EMIs that you pay over time, which actually reduces your outstanding principal. Thus, even if the interest rate is low, you effectively pay more.

For instance, say you avail a personal loan of Rs.10 lakh on a flat rate of interest of 10% payable in 5 years, then your EMI will be Rs.25,000 and total interest outflow will be Rs.5,00,000. On the contrary, in case of reducing or diminishing balance method, lenders calculate interest on your monthly outstanding balance after deducting the EMIs that you have repaid so far. This reduces your EMIs and total interest.

For the same example given above, your EMIs as per the reducing balance method will be Rs.21,274 and total interest outflow will be Rs.2,74,823. So, when applying for a personal loan in India, go for a lender who charges interest on reducing balance method. This will help you keep the interest outgo within budget.

Learn About The Associated Costs That Come Alongside The Interest

A personal loan in India has various other charges that add to your total borrowing cost. Apart from interest, the lender also has other charges like a processing fee, penalty for late EMIs, part-prepayment, and foreclosure charges. While some lenders discuss these charges up front, others may not. Signing up for a personal loan in India without having knowledge about such charges may result in you paying much higher than you anticipated.

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Knowing these charges before signing the loan document will help you plan your repayment better and prepare for these costs. For instance, lenders normally charge a processing cost for your loan which is deducted from the total amount that is sanctioned to you. Lenders may also charge you a secure fee for an online application.

Borrow Only What You Need

Based on your eligibility for the loan, a lender may offer you a hefty sanction at nominal interest rates. However, just because you are eligible for a particular amount does not mean you borrow more than you need. It is important to borrow as much as you require, as this will not only keep your interest obligation within check, but will also allow you to repay the loan faster. A pocket-friendly loan is easy to service and if you have the means, you can foreclose it early to reduce your debt. This will work in your favour and improve your credit score too.

Avoid Applying For Multiple Personal Loans in India Simultaneously

Another key aspect that you must abide by when applying for a personal loan in India is to make one loan application at a time and ensure all your documents at a place. Submit your application only after you meet the lender’s eligibility criteria and use the personal loan eligibility calculator online to prevent any mismatch. Whatever you do, do not apply for multiple loans at the same time.

Though doing this is tempting as you may think you are increasing your chances of approval on at least one, each application incites a hard inquiry into your credit score and profile. Multiple applications thus cause your credit score to drop and even make you look credit-hungry. This will only hurt your chances of getting approved.

Compare Lenders and Their Offerings Before You Apply

Researching your options well before shortlisting a lender can go a long way. Not only does this help you find lenders offering affordable personal loan interest rates, but also those who have beneficial features that elevate your borrowing experience. For instance, Bajaj Finserv offers a high-value personal loan of up to Rs.25 lakh at nominal interest rates, which helps you keep borrowing costs at a minimum.

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With such a hefty sum, you can fund a variety of expenses and goals without compromise. Also, you can repay this loan via a flexible tenor ranging from 12 to 60 months. Additionally, a unique feature of this personal loan is that you get access to the flexi loan facility on your sanction. Owing to this facility, you can withdraw from your sanction multiple times, in parts and pay interest only on the amount you use. You can also choose to pay interest-only EMIs, which reduces your monthly instalments by up to 45%.

Further, its simple personal loan eligibility criteria and minimal documentation expedite your approval. Once approved, you can expect to receive funds directly in your bank account in just 24 hours. Check your pre-approved personal loan offer by providing a few basic details and hasten your financing.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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