8 Crucial Things to Consider Before You Get a Personal Loan


You can never predict what will happen the next day. Life will occasionally throw you a curveball. If you have not kept an emergency monetary reserve to deal with such events, you may find it difficult to navigate the situation. But with a personal loan at your fingertips, you can put an end to all of your financial woes. This loan product is available without collateral, and you may use it for whatever purpose you see fit.

Although this loan is easily available, you need to keep various pointers in mind.

Points to consider before taking a personal loan

Personal Loan

1. Consider your finances

Before you get a personal loan, dive deep into your finances. Assess your current obligations. See how much you pay for your child’s education each month, as well as different insurance premiums, groceries, and so on. If you believe you have enough disposable income to manage new debt after paying these expenses, you can proceed with your decision to apply for a loan.

2. Debt-to-income ratio

This is another vital factor that many people overlook. Furthermore, there is no information about the debt-to-income (DTI) ratio on the lender’s personal loan eligibility criteria page. DTI is the percentage of your monthly income that you pay toward current debt obligations. Before proceeding with your application, you should calculate DTI on your own.

Here is the DTI calculation formula.

DTI = (Total Monthly EMI) ÷ (Gross Monthly Income)

You may be turned down for funding even if you have a higher monthly income. Poor DTI could be the cause of this. Assume your monthly salary is Rs 2,00,000. However, your total EMI for all loans is Rs 1,70,000. In this case, the lender will not approve funds. And if they do, you should expect to pay higher interest rates.

3. Assess your needs

Evaluate how much money you will need to achieve your goal. For example, If you have shortlisted a bike worth Rs 95,000 but qualify for Rs 4,00,000 under the personal loan eligibility criteria, it makes no sense to apply for a higher amount.

There is a high likelihood that the surplus funds will be used to meet leisure expenses, which will only increase the interest burden while potentially creating a default situation.

4. Not considering the fine print

Never commit this mistake. The loan document is crucial. It contains information on repayment periods, interest rates, various penalties, provisions for complete or partial prepayment, and a few more.

There is a possibility of a hidden clause if you apply with a newly established lender. However, if you carefully read the fine print, you can avoid any negative scenarios that may arise in the future while making EMI payments.

5. Check the application process

Make an effort to comprehend the loan application process. Check to see if the lender accepts online applications.
Many financial institutions now have their own digital lending arm, which allows for approval in as little as 20 seconds. Disbursement time is also much faster than with a traditional lender.

6. Repayment flexibility

Check to see if the lender you are considering has a flexible repayment schedule. If the lender does not allow you to choose your own tenure, you might end up paying more in interest. Therefore, avoid proceedings with such a type of lender.

Assume you require a personal loan of Rs 5,00,000 and have a repayment plan that allows you to repay the loan in two years. The lender examines your credit profile and charges a 13% interest rate based on it.
Since there is no option to choose your own repayment period, you will have to stretch your loan for five years. The additional interest you will pay in this case is Rs 1,12,090.

7. Shop around

Shop around before deciding on a lender for a personal loan. Investigate what others have to offer. Each lender has a different minimum and maximum loan amount, eligibility requirements, disbursement process, repayment period, and interest rate.
If you apply with any lender at random, you may end up with an expensive loan.

8. Other alternatives

This may seem strange, but if you do not have a good credit history, you should look into other options to meet your needs. A personal loan is provided without the requirement of collateral, and the interest rate is slightly higher than that of a secured loan. If your profile is low, you can try to raise funds from friends or request a salary advance from your employer.


With the advancement of technology, getting a personal loan is no longer difficult. What is more important, however, is to obtain funds at a lower interest rate. And the suggestion given above will be useful in this regard. Assessing your budget, reviewing your profile, and exploring the different options can help you get a personal loan at best possible deal.