Personal loans are unsecured loans that do not require you to put up collateral and allow you to access funds in a lump sum. When you take this loan, you can repay the borrowed sum in installments over a specified tenure. Before you avail of an instant loan, understand its intricacies and evaluate the essential factors.
It is an unsecured loan that you can use for various purposes. Nowadays, financial services are easily available digitally; you can get funds on the go with the help of a personal loan app. They generally come with fixed interest rates, making EMIs predictable.
You can use these funds for a wide range of personal needs, such as:
- Consolidating debts
- Covering medical emergencies
- Planning a dream vacation
- Financing a grand wedding
The following are some of the key features of personal loans:
| Aspect | Details |
| Collateral Requirements | Not required as this is an unsecured loan and eligibility is based on credit score, income and existing debt |
| Usage | Can be used for any purpose; there are no restrictions |
| Tenure | 12 to 60 months in general |
| Interest Rates | Fixed (some lenders offer variable rates) |
Key Factors to Consider Before Applying for a Personal Loan
Before you apply for this facility, ensure that it is the right fit for your finances. Take the following into account:
1. Your Financial Needs
First, you need to understand why you need the loan. For a better assessment, ask yourself the following questions:
- How much do you need?
- Can you manage the EMI from your monthly income?
- How fast can you repay the personal loan?
2. Check If You Are Eligible
Since you can find many lenders offering this financing facility, it is crucial to know that their eligibility requirements may vary. Some of the common criteria include:
| Eligibility Factor | Typical Requirement |
| Age | 21-60 years |
| Credit Score | 650+ |
| Monthly Income | ₹15,000+ (varies by lender) |
| Employment | Business or salaried (for the last 6 months or more) |
Apply only if you qualify on all fronts as this helps you get quick approval.
3. Consider the Interest Rates and Charges
Interest rates and applicable fees significantly impact the total cost of your loan. The following are a few things to keep in mind:
- Compare interest rates across lenders
- Understand other charges like:
- Processing fees
- Prepayment penalties
- Late fees
- Use an EMI calculator to see your cost of borrowing
- Example: If the loan amount is ₹5,00,000 and you want to repay in 3 years, the EMI and total repayment cost will vary with interest rates.
| Loan Amount | Interest Rate | Tenure | EMI | Total Repayment |
| ₹5,00,000 | 12% | 3 years | ₹16,607 | ₹5,97,857 |
| ₹5,00,000 | 14% | 3 years | ₹17,089 | ₹6,15,197 |
Disclaimer: All calculations are for illustration purposes only and actual figures may vary.
4. Get Your Latest Credit Score
Your credit score reflects your financial health and repayment behaviour. Here is why this 3-digit score is crucial during the lending process:
- Higher credit scores often result in lower interest rates and higher approval chances
- A score below 650 might result in rejection or higher interest rates
You can employ the following strategies to improve your credit score and, consequently, the chances of securing a loan:
- Pay EMIs and bills on time
- Avoid multiple loan applications simultaneously
- Reduce existing debt levels
5. Choose Loan Amount and Tenure
Select the right loan amount and repayment duration to comfortably manage your instalments. Here are some factors to consider:
- Ensure the EMI is affordable and matches your current income
- Longer tenures reduce monthly EMI but increase the total interest paid
- Shorter tenures save on interest but result in higher EMIs
- Example: Consider a loan amount of ₹5,00,000 and the interest of 12%:
| Loan Tenure | EMI | Total Interest Paid |
| 1 year | ₹44,424 | ₹12,196 |
| 2 years | ₹23,537 | ₹39,084 |
| 4 years | ₹13,167 | ₹66,940 |
Disclaimer: All calculations are for illustration purposes only and actual figures may vary.
6. Assess Loan Repayment Capacity
Analyse your monthly budget to ensure you can repay the loan without straining your finances. The key metrics include
- Debt-to-Income Ratio: Your total monthly debt obligations are divided by monthly income
- Ideally, the DTI ratio needs to be below 30%
7. Figure Out Processing Time
If you need funds urgently, opt for a lender that offers quick processing. Here is the average processing time for different financial institutions:
- Traditional Banks: 2–5 days
- Online Personal Loan Apps: 3–72 hours
8. Take a Look at Loan App Features and Reputation
With so many online lenders available, selecting the right app may be difficult for you. Here’s what you need to look for:
- Transparent terms and conditions
- Positive customer reviews
- Secure data handling practices
- Pre-approval features for checking eligibility without affecting your credit score
9. Identify Hidden Costs
Some online lenders charge fees beyond the interest rate that are only mentioned in the terms and conditions. Here are the common charges you need to check for to avoid surprises later:
- Processing Fees: 1–3% of the loan amount
- Prepayment Charges: Penalty for paying off the loan early
- Late Payment Fees: Charges for missed EMIs
10. Ensure the Right Customer Support
Reliable customer support can make your loan journey hassle-free, which is why you need to look for lenders offering quick and responsive services. Here is why it matters:
- For resolving queries quickly
- Ensuring transparency in the loan process
Understanding the factors mentioned above and evaluating your needs ensures that you have a smooth borrowing experience. Use a personal loan app that aligns with your financial goals, offers transparent terms and provides quick service.
Monitoring your credit report is crucial when borrowing and a good financial habit to inculcate. You can get your credit score and credit report for free by using the OneScore App. It provides you with personalised advice and frequent updates to help you raise your credit score.
You may easily accomplish your goal by setting a target using the Score Planner tool. Get the app now to enjoy financial empowerment and a deeper understanding of your credit score! What’s more, you can even get loan offers based on your credit score via the app.