Factors to Consider When Availing a Personal Loan


When factoring in personal loan, whether a 2 lakh personal loan or a 1 lakh personal loan, it is important to know its importance and the parameters that impact your decision. Personal loans provide a flexible solution to meet distinct needs, from managing expenditures to financing essential life events. Unlike particular loans such as a car loan or home loan, personal loans endow the freedom to utilise the funds according to your needs, making them a choice for instant financial requirements.

Here are the top factors to consider when availing of a personal loan –

Loan amount

Choosing the right loan amount requires a balance. Overborrowing leads to unnecessary debt and more interest over time while underborrowing might leave you short of funds. It’s essential to accurately assess your financial needs and borrowing capabilities. Factor in your purpose for the loan and any other financial commitments you have when determining the loan amount.

Rate of interest

The Personal loan interest rate is important to know as it directly impacts the overall amount you repay. Distinct financial institutions and banks provide differing interest rates, often impacted by parameters like market conditions, the lender’s policies, and credit profile. Note that even a little difference in the rate of interest can result in a considerable difference in the overall interest paid during the tenure of the loan. It is essential to not just look out for the lowest rate of interest but also understand the kind of rate of interest whether floating or fixed and be cautious of any introduction benefits that may have higher rates.

Repayment tenure

The tenure of your loan is a significant determinant of both your EMI and the total interest cost. A longer tenure spreads out the repayments, making each EMI smaller but increasing the total interest paid. A shorter tenure means higher monthly payments but reduces the total interest cost. Your choice should reflect a balance between a manageable EMI and a reasonable total loan cost.

Processing fees

These are charges levied by lenders to process your loan application. They can differ considerably among lenders and might be negotiable in certain scenarios. It is necessary to account for the fees as they add up, particularly for bigger loan proceeds.

EMI affordability

The EMI (Equated Monthly Installment) should fit comfortably into your monthly budget. If it is very high, it might burden your finances, but if it is low, it can extend your debt period. Online calculators are beneficial instruments to assist you in knowing your monthly outgo and plan out accordingly.

Credit score

Your credit score reflects your creditworthiness based on past credit behaviour and repayment history. A higher score can make you eligible for lower interest rates and better loan terms. Regularly monitoring and working to improve your credit score can significantly benefit your loan conditions.

Prepayment/foreclosure charges

These are fees imposed by some lenders if you pay off your loan before the end of its tenure. If you expect to have the means to pay off your loan early, seek out loans with low or no prepayment penalties.

Income stability

Lenders evaluate your income stability to assess your repayment capacity. Stable and regular income, whether from a salaried job or a consistent business, assures lenders of your ability to repay the loan, often leading to quicker approvals and better terms.

Loan disbursal time

The time it takes for the loan amount to be disbursed is crucial, especially if you need the funds urgently. Some lenders offer rapid disbursal post-approval, which can be a deciding factor in emergencies.

Collateral requirement

While personal loans are typically unsecured, some lenders may require collateral, especially if the loan amount is high or if your credit profile is less than ideal. Understand the implications and risks of offering collateral.

Lender’s reputation

Choosing a lender with a good reputation for fairness, transparency, and customer service can save you from potential hassles. Research lenders, read customer reviews, and consider their history and standing in the market.

Insurance on loan

Loan insurance can protect you and your family in case of unforeseen events impacting your repayment ability. While it adds to the cost, it provides a safety net, making it a consideration worth evaluating.

Customer service

Efficient customer service can greatly enhance your loan experience. Responsive and helpful customer support can be crucial in addressing your queries and resolving any issues that may arise during the loan tenure.

Hidden charges

Apart from the interest rate and processing fees, there may be other charges like late payment penalties, cheque bounce charges, or charges for changing loan terms. Being aware of these helps in understanding the true cost of the loan.

Eligibility parameter

Each lender has specific criteria for loan eligibility, including minimum income requirements, age, employment status, and credit score. Ensure that you meet these criteria to increase your chances of loan approval.

Loan agreement

Reading and understanding the loan agreement thoroughly is critical. It includes all terms and conditions, interest rate details, repayment schedule, and any clauses regarding penalties or fees.


Proper documentation is essential for a smooth loan process. This typically includes identity proof, address proof, income proof, and employment verification. Having these documents ready can expedite your loan application process.

Flexibility in repayment

Some lenders offer flexible repayment options, which can be beneficial if you anticipate changes in your financial situation. These may include options to increase or decrease EMIs or make lump-sum payments without penalties.

Tax benefits

Usually, personal loans do not offer tax benefits. However, if you use the loan for specific purposes, such as home renovation or education, you may be eligible for tax deductions under certain conditions.

Online accessibility

The ability to manage your loan account online offers convenience and better control over your loan. Features like online payment, statement downloads, and online customer support are useful for efficient loan management.

Availing a personal loan in India is a decision that requires careful consideration of various factors. From assessing the interest rate to understanding the flexibility and terms of the loan, each aspect plays a crucial role in ensuring that your financial choice is both beneficial and sustainable. Remember, a well-thought-out decision today can lead to a financially secure tomorrow. Always approach personal loans with a clear understanding of your financial health and the impact the loan will have on it.


Leave a Reply

Your email address will not be published. Required fields are marked *