6 tips for getting your first personal loan – Forbes Advisor INDIA

Personal loans can be used for almost any purpose, from unexpected medical expenses to home improvement needs, they act as a source of extra cash when needed. Unlike a home loan or a car loan, personal loans in India are often not guaranteed by nature, which means that they are not guaranteed against any particular asset that you own. While trying to avail a personal loan from a bank or a non-bank financial company (NBFC), borrowers are not required to provide collateral such as gold or real estate.

For those looking to qualify for a personal loan for the first time, it is important to understand what these loans are and what are a few things to keep in mind when applying online.

Here are six essential tips to consider before applying for an immediate personal loan online. This will help you avoid making costly mistakes like choosing the wrong lender, choosing an impractical tenor, or borrowing more than you need.

1. Maintain a good credit score

A credit score is an essential measure that lenders use to determine any borrower’s ability to repay a loan. Simple things like paying your credit card bills on time will help you create a good credit score. A tip for maintaining a positive credit history is to not exceed your credit limit by more than 30%. A good credit rating will make it easier for you to get a personal loan.

2. Carefully calculate the monthly installments (EMI)

EMI payments don’t have to deplete your savings and become a drain on your finances. In order to ensure that this does not happen, it is imperative to calculate the amount of the EMI and ensure the capital’s ability to pay it for the stipulated duration. Usually the calculation is that EMIs must be less than 10% of your monthly income. In the event that the EMIs are higher, you risk emptying your savings and this will negatively impact your daily expenses.

3. Choose a loan with the lowest interest rate

Personal loans generally have higher interest rates which can range from 11% to 20%. Therefore, even the smallest drop in interest rates can make a big difference to the overall cost of your loan. Remember that if you opt for a low monthly payment over a long repayment term for convenience or other reasons, the interest rates will often be the highest.

This is an important point because small monthly payments may seem very viable, but ultimately lead to you paying more for the loan over its lifetime. Therefore, as a general rule, borrowers should aim to spend no more than 35% to 43% on debt, including mortgages, auto loans, and personal loan repayments.

4. Assess the need for a loan

While it’s not a bad thing to avail of a loan, it is a financial liability that can stretch over a period of time. Therefore, it is important to assess the motivations behind the loan and ensure that it is absolutely necessary. If the purpose of the loan is a personal whimsical desire to buy a luxury item, it may not be the wisest decision.

Also, it is a high-risk decision if the idea behind taking out a loan is to invest in other financial products/programs in hopes of making a profit. These borrow and reinvest programs are also subject to market risk and there is never a guarantee of lucrative returns. Therefore, you should beware of loans for high risk businesses because in the end, regardless of profit or loss, you are expected to pay EMIs for your loan.

A bad investment will lead to massive financial liability, and so before applying for a loan seek advice from the right people to determine if the reasons for taking out a loan are financially viable.

5. Always take a loan from a credible financial institution

Apart from traditional banks, you can also evaluate options from digital credit companies approved by the market regulator Reserve Bank of India.

Digital lenders are relatively faster in verifying and processing loan applications, disbursement often happens faster. One example is the bullet repayment feature which allows users to choose the repayment schedule based on their working capital cycle, as opposed to fixed schedule payment.

Other features introduced by digital lending companies include the ability to avail a shorter term loan and deferred repayment option allowing customers to request an extension of the repayment date from 30 to 90 days, without having to to pay a late payment penalty.

Being able to choose from multiple options is beneficial as it further allows the borrower to evaluate and compare interest rates, processing time, and other important parameters before deciding on their loan.

6. Consider insuring your loan

If there’s one thing this pandemic has taught us, it’s that life is unpredictable. Therefore, in order to ensure that your next of kin does not end up with loan debts in the event of your death, it is important to insure your loan. Loan insurance payments work like any other insurance premium payment; they can be paid on a monthly basis or as a lump sum.

Loan insurance also allows your credit rating to remain optimal because in the event of the unexpected, you will not miss your loan repayments.


Personal loans can be beneficial if used for the right reasons. It’s important to make sure your lender is a real player and that your repayments are quick and consistent. And above all, remember to use the loan in accordance with its intended purpose. When used wisely, a personal loan can help fill a gap in your finances without having to risk your personal assets.

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