Personal Loans Guide

One of the most rapidly expanding segments for banks has been personal loans. Banks use liquidity to attract customers with advantageous interest rates on these loans. Based on a person's salary, banks lend to individuals. This surge in popularity and the increasing needs have led to more and more people opting for personal loans.

Personal loans are the most convenient option to combat immediate financial crunch. It is a preferred option for lumpsum cash, to handle debt consolidation, emergencies, covering a vacation or a purchase, etc. One of the most flexible types of debt is personal loans, which allow you to use the money for a variety of purposes with minimal restrictions.

What do you need to know before opting for a personal loan? It gives the financial push, you need. However, like every other borrowing option available in the market, it is crucial to learn the ins and outs of the personal loan.

1. Ideal loan size and tenure

   Aim for a personal loan with EMI that's under 20% of your monthly income. This ensures you can still afford your regular expenses. Keep the loan amount itself small, preferably with a smaller tenure, so that you do not end up paying extra interest.

2. Aim to understand FOIR

   FOIR stands for Fixed Obligations to Income Ratio. FOIR calculates the percentage of your income that goes toward fixed expenses. A lower FOIR indicates that you have more disposable income to handle additional debt, which makes your loan application more appealing to lenders.

3. Opt-in times of necessity and know the reason

   Only borrow what you truly need, and you can comfortably afford. Personal loans are best for emergencies or specific needs, not everyday expenses or vacations. Unnecessary loans for Non-essential needs may end you up in a debt trap and hamper your financial health.

4. Know your credit score

   A good score qualifies you for lower interest rates, saving you money in the long run, and also improves your repayment record. A lower credit score might even disqualify you from the approval process.

5. Compare loan offers, lenders, processing fees, and terms

   Don't settle for the first offer – shop around for the most competitive rates and terms that suit your situation.

6. Sign for autopay

   Set up automatic payments to avoid missed payments and potential penalties. Also, auto payments have several offers and discounts attached to them.

1. Do not opt, when you can't repay

   Consider taking charge of financial management. It is crucial. This means only taking out loans you're sure you can comfortably afford.

2. Do not apply at multiple options and only take what you need

   Compare loan options but only apply for a few at a time. Borrow only what you absolutely need.

3. Do not be late or miss an EMI payment

   Make your loan payments on time and in full to protect your credit score.

4. Do not prepay the loan without knowing the charges (Foreclosure charges)

   Research foreclosure charges before paying off a loan early to avoid surprise fees.

5. Do not fall for lower interest rates or extend tenure to lower payments

   Don't be lured by super-low interest rates or extended terms that may hide higher long-term costs.

6. Do not fall for scams, upfront fees, or advance Processing fees

   Avoid scams promising easy loans. Legitimate lenders will only request upfront fees after approving your application.