Key takeaways
- Borrow for a clear purpose, and only the amount your savings cannot cover.
- Choose the shortest tenure whose EMI you can pay comfortably, because a longer tenure adds interest.
- Compare the APR and every fee in the Key Facts Statement, not just the headline interest rate.
- Check part-payment and foreclosure rules before you sign, in case you want to close the loan early.
- The lender decides approval, the amount and the rate after checking your credit report, income and documents.
Decide what the money is for
A personal loan is unsecured. You do not pledge property or gold, so the lender relies on your income, your existing EMIs and your credit history. That usually means less paperwork than a secured loan, but a higher rate.
Write down the expense, what it will cost and how much you can pay from savings. Borrow only the gap. If a lender offers more than you need, you do not have to take it. Every extra rupee adds interest and raises your EMI.
Also check that a personal loan is the right product. A home purchase usually suits a home loan, and a large business need may suit a business loan. A personal loan fits personal costs such as treatment, a wedding, education or home repairs.
Work out an EMI you can carry
Lenders look at how much of your monthly income already goes to EMIs. Many use a ratio called FOIR, the share of your net income taken by all your EMIs together. Our eligibility calculator assumes up to half your net income can go to EMIs, but each lender sets its own limit.
A comfortable EMI is often lower than the most a lender allows. As an illustration, say you take home ₹50,000 a month and already pay ₹8,000 in EMIs. Half your income is ₹25,000, so the room left for a new EMI is about ₹17,000. Treat that as a ceiling, not a target. Rent, school fees, insurance and savings for emergencies still have to fit around it.
Choose the shortest tenure you can manage
Personal loans are often repaid over up to five years. A longer tenure lowers the EMI, but you pay interest for more months.
Take ₹5 lakh at 12% a year as an illustration. Over 36 months the EMI is about ₹16,607 and the total interest about ₹97,858. Over 60 months the EMI falls to about ₹11,122, but the total interest rises to about ₹1,67,333. The smaller EMI costs you roughly ₹69,500 more.
Try a few amounts and tenures in our EMI calculator before you speak to any lender. Then pick the shortest tenure whose EMI still leaves you a cushion each month.
Compare offers on total cost, not the headline rate
Two offers at the same rate can cost different amounts once fees are added, as our guide to comparing the total cost of a loan shows. RBI rules require lenders to give you a Key Facts Statement (KFS) before you sign a retail loan. It shows the annual percentage rate (APR), which folds the interest and the lender’s charges into one yearly figure, and the repayment schedule.
The KFS protects you too. A lender cannot charge you a fee that is not listed in it without your explicit consent. Ask every lender for its KFS for the same amount and tenure, then compare these points:
- The APR, not just the interest rate
- The processing fee and GST on it, and whether the fee is deducted from the amount you receive
- Any insurance added to the loan, what it costs and whether it is optional
- Part-payment and foreclosure rules and charges
- Late-payment and bounce charges
Know what lenders check before you apply
Lenders look at your credit score and repayment history, your income and how steady it is, your employer or business, your existing EMIs and your bank statements. Bounced EMIs or cheques, many recent loan enquiries and heavy credit card use can all count against you.
Check your credit report first. Each credit bureau gives you one free full report a year. If a closed loan still shows as open, or a payment is wrongly marked late, ask for a correction before you apply. Then apply where your profile fits rather than with several lenders at once, because each formal application usually adds an enquiry to your report.
Keep your papers ready too. The usual documents for a personal loan are PAN, Aadhaar, recent salary slips or ITRs, and six months of bank statements.
Read the sanction letter before you sign
If a lender approves your loan, read the sanction letter and loan agreement line by line. Check that the amount, rate, tenure, EMI date, fees and insurance match the KFS. If the rate is floating, ask how and when it can change.
Ask how early closure works. Many personal loans carry a fixed rate. Lenders may allow part-payment or foreclosure only after a set number of EMIs, and may charge for it. For floating-rate loans taken by individuals for personal use, RBI rules do not allow prepayment charges.
Never pay anyone in cash or into a personal account to “release” a loan. Genuine charges appear in the KFS and are paid through official channels. Our answer on upfront payment requests explains what to do.
Avoid the slips that raise your cost
LoanBazzaar compares all major banks and loan providers for your profile and explains each offer in plain words. Start with our page on personal loans in Lucknow, call us, or visit our office in Gomti Nagar. The lender still decides approval, the amount and the rate.
Whichever lender you choose, watch out for these common slips:
- Taking the full eligible amount when you need less
- Choosing a long tenure only to get a small EMI
- Applying with many lenders in the same week
- Accepting a top-up or an insurance add-on without checking its cost
- Missing the first EMI because the auto-debit was not set up
- Sharing an OTP, PIN or password with anyone who calls
Relevant loan assistance
Want help comparing personal loan offers?
Tell us the amount you need and your income. A LoanBazzaar advisor compares all major banks and loan providers for your profile and gives you one clear document list.
Sources
How we write our guides
The LoanBazzaar editorial team writes these guides around the questions borrowers ask us most, in plain language. We update them when rules or common lender practice change. Spotted an error or something out of date? Tell us.
