Getting a personal loan can be helpful when you need money for urgent expenses like medical bills, education, wedding, home renovation, or even travel. But choosing the right personal loan is very important. If you don’t pick carefully, you may end up paying high interest or facing repayment issues.
Here are 5 important factors you must know before you apply for a personal loan:
1. Interest Rate
The first and most important factor is the interest rate. It decides how much extra money you will pay along with the loan amount. Personal loan interest rates usually start from 10% and can go up to 24% per year.
Tip:
- Compare interest rates from different banks and NBFCs (Non-Banking Financial Companies).
- Go for the one offering the lowest rate with good terms.
- Even a small difference in interest can save you thousands.
Example:
If you borrow ₹2 lakh for 3 years:
- At 10% interest, your EMI is around ₹6,450.
- At 18% interest, EMI becomes ₹7,230.
- So you pay ₹28,000 more with the higher rate.
2. Loan Tenure (Repayment Time)
Loan tenure is the time given to repay your loan. It usually ranges between 12 to 60 months.
Tip:
- A longer tenure means lower EMI but higher interest in the long run.
- A shorter tenure means higher EMI but you save on interest.
Choose the tenure as per your income and ability to pay monthly EMIs comfortably. Do not stretch too much or you may miss EMIs and face penalties.
3. Processing Fees & Hidden Charges
Banks and lenders charge a processing fee (1% to 3% of the loan amount). Sometimes, there are hidden charges like:
- Late payment charges
- Foreclosure charges (if you repay early)
- Prepayment penalties
Tip:
- Always ask for a complete list of charges before applying.
- Read the loan agreement carefully.
- Some banks offer zero processing fee or no prepayment charges — choose those if available.
4. Eligibility Criteria and Documentation
Each lender has different eligibility criteria, but most look at:
- Age (usually 21 to 60 years)
- Monthly income (minimum ₹15,000 or ₹25,000 in most cities)
- Job type (salaried or self-employed)
- CIBIL Score (750+ is ideal)
Documents required include:
- ID proof (Aadhaar, PAN)
- Address proof
- Salary slips or bank statements
- Job certificate or business proof
Tip:
- Check your eligibility before applying. Many websites offer free loan eligibility checks.
- Keep all documents ready to avoid delay or rejection.
5. Your CIBIL Score (Credit Score)
A CIBIL score is a number that shows your credit history. It ranges from 300 to 900. A score above 750 is considered good.
Why it matters:
- A good score gets you quick approval and lower interest rates.
- A low score may lead to rejection or high rates.
Tip:
- Check your credit score for free online before applying.
- If it is low, improve it by:
- Paying EMIs and credit card bills on time
- Reducing your existing debt
- Not applying for too many loans at once
- Paying EMIs and credit card bills on time
Bonus Tips to Choose the Right Personal Loan:
- Use Loan Comparison Websites: Websites like Paisabazaar, BankBazaar, and others help you compare offers from many lenders in one place.
- Check EMI with Online Calculators: Use personal loan EMI calculators to plan how much you will pay monthly.
- Read Customer Reviews: Look at feedback from other borrowers to know how good the bank’s service is.
- Ask for Offers: Some banks offer special rates for salaried people, women, or loyal customers — don’t hesitate to ask.
Final Words
Taking a personal loan is a big financial decision. Don’t rush. Think about why you need the loan, how much you need, and how soon you can repay. Choosing the right personal loan helps you manage your expenses without stress and improves your credit score too.
So, always remember to check these 5 key points:
- Interest Rate
- Loan Tenure
- Fees and Charges
- Eligibility and Documents
- CIBIL Score
Choose smartly and borrow wisely!