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Dos and Don'ts of Taking a Personal Loan

In today’s day and age, availing of a personal loan is easy - the availability of online applications, their increasing affordability, and several value-added benefits have made the personal loan procurement process very simple for consumers.

However, despite the many advantages of personal loans, before beginning your application, you must ensure that you follow a set of dos and don’ts for a smooth, and hassle-free application process. This checklist can also assist you in making the most of your personal loan and ensure it doesn’t end up burning a hole in your pocket.

Dos of Taking a Personal Loan

  1. Do check the interest rate on offer

Remember that your EMI will include both repayments of the principal amount and interest.

Be sure to check the interest rates offered by your lender, that is the bank or NBFC (Non-Banking Financial Institution) that you have chosen to apply for your loan with. Compare and contrast the different interest rates offered by the different institutions.

  1. Do evaluate your FOIR

FOIR refers to Fixed Obligations to Income Ratio. To understand this, let’s use an example. Arnab Mehta earns Rs 1,00,000 per month, which is a handy sum of money. However, taking into account his children’s school and tuition fees, household expenses and EMI on a previous loan, he ends up spending Rs. 95,000 per month, resulting in a less desirable FOIR. In this scenario, Arnab’s obligations clearly indicate that even though he has a high income, he may not have the propensity to pay back a loan.

On the other hand, Shefali Kumar earns Rs 60,000 per month, but ends up spending merely Rs. 20,000 per month, as a result of fewer obligations. Thus, her FOIR indicates that she will easily be able to pay back a loan.

A healthy FOIR range is between 30% to 50%. Your lender will also check this and as a result, it is advisable to evaluate this for yourself before applying for a personal loan.

  1. Do check the overall cost of the loan

One of the biggest advantages of personal loans is that before signing up for a loan, you can utilize what is known as a personal loan calculator. This tool, available free of cost on platforms such as Bajaj Markets, will take into consideration your loan amount, loan tenure and rate of interest to churn up the EMIs you would be required to pay per month.

Use tools such as the Personal Loan EMI calculator in order to check how much you will be paying per month in order to settle your loan and for how long.

  1. Check the terms

Everyone has different spending patterns. You may want to withdraw the loan amount in smaller installments over the period of your loan tenure. Or you might want to repay smaller sums at first and larger chunks later. A good lender will go the extra mile and offer you options such as unlimited withdrawals and the option to pay interest-only EMIs during the initial period. Ensure you check the terms of the loan you opt to assess if such perks come included.

  1. Opt for online loans

Applying for loans online is faster, easier and cheaper. What more do you need? Moreover, you can check personal loan status on-the-go with handy customer portals that consolidate all relevant information, ranging from your outstanding loan amount to repayment details. So, don’t forget to make the most of this handy advantage of a personal loan.

Don'ts of Taking a Personal Loan

  1. Don’t ignore your credit score

Your CIBIL score reflects your past credit history and is an indicator of whether you would make timely repayments of the loan you are applying for. It plays an important role in determining your eligibility for a personal loan. CIBIL score can be checked on the CIBIL website or on platforms such as Bajaj Markets. You can check your CIBIL score for free on Bajaj Markets with the Financial Health Check Report (FHCR). The FHCR gives you a detailed picture of your financial stability with handy insights and personalized assessments.

  1. Don’t say a blanket no to credit

If you have never had a credit card, it becomes challenging for a bank or NFBC to evaluate your credit-worthiness. On the other hand, if you already have a credit history, it becomes easier for lenders to gauge your credit-worthiness and accordingly process your loan application.

  1. Don’t apply without checking your required credit amount

Sit down with a pen and paper (or an excel sheet if that makes you more comfortable) and make a thorough calculation of precisely how much credit you will need. It is alright to consciously ask for an amount that ensures some margin for unforeseen circumstances, but on the overall try to ensure you do not over-borrow. Over borrowing is one disadvantage of a personal loan that will unnecessarily scale up your monthly outgoings (don't forget that you're paying interest on the loan sum, so any excess amount is a true waste).

Know how to find the right personal loan for you    


Adhere to these dos and don'ts to safeguard your interests and to get the best possible deal on your personal loan. Keeping in mind this set of guidelines and the various personal loan advantages and disadvantages, you can apply for the Bajaj Finserv Personal Loan on Bajaj Markets. The personal loan on Bajaj Markets comes with flexible repayment tenures, high loan amounts of up to Rs. 25 lakhs, competitive interest rates and a whole bunch of other benefits.

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