Written by Khushboo Tanwar – 
& CS Sakshi Gupta
A personal loan can help you get quick access to additional funds that can help you in personal or professional situations.
A personal loan is an unsecured collateral-free loan that can help you get cover for any of the exigencies that may come unannounced.
Be it for a medical emergency, higher education, or a wedding in the family, you can rely on personal loans to help you meet your goals with ease.
As you do not need to submit any collateral for the personal loans that you plan to take, it is important to note here that the lender will assess your financial position and capability to repay before approving the personal loan.
Hence, there are some Do’s and Don’ts which you can follow for getting a personal loan.
To Read more about Working Capital Loan.
Do’s while Taking a Personal Loan
01. 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.
02. Do evaluate your FOIR
FOIR refers to Fixed Obligations to Income Ratio.
To understand this, let’s use an example. A 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, A obligations clearly indicate that even though having a high income, but may not have the propensity to pay back a loan.
On the other hand, B earns Rs 60,000 per month, but ends up spending merely Rs. 20,000 per month, as a result of fewer obligations. Thus, B’s FOIR indicates, 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.
03. Do check the overall cost of the loan
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.
04. Do choose the tenure carefully
Selecting the tenure of your loan is very important as it can impact the overall interest outgo.
For instance, a personal loan of Rs. 5 lakh for a tenure of 60 months at 11% per annum will attract an interest outgo of Rs. 1.5 lakh with an EMI of Rs. 10,871.
However, if the same loan is taken for tenure of 30 months, your EMI would go up to Rs. 19,000 but the interest falls less than half to Rs. 74,000. Therefore, it is important to select the tenure of your loan carefully.
You will need to take into account elements like your income, current commitments, and the kind of monthly EMI that you can pay consistently. All these factors will help in selecting the tenure carefully
05. Do draw repayment plan
While a personal loan helps meet your professional and personal goals, you need to draw up a clear repayment plan to ensure that you are on course to making a robust credit history.
At this step, you will get clarity about how you plan to return the money and also make provisions and set a target for any part pre-payments that you plan to make during your tenure.
Don’ts while Taking a Personal Loan
01. 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 other platforms.
02. Don’t use the loan for non-essential spending
It is important to be clear about the purpose for which you are taking the loan. Although personal loans do not stop you from spending the loan amount on a variety of requirements, you should spend the loan amount for which the loan was taken.
It is not a good idea to spend the loan amount on non-essential items. Although it may sound tempting to splurge on some items, remember that these are borrowed funds which are to be paid back to the lender along with interest.
Therefore, it is always better to stay focused and use the loan on essential requirement
03. Don’t apply without checking your required credit amount
By applying without assessing your requirements, there is a high probability that you may end up with excess or shortage of funds.
As a result, you may not be able to either meet your objectives or end up spending much more than you would have because of excess funds. It is always better to assess the requirements properly and take a loan for an amount that is required.
Proper assessments of your financing needs will help in initiating the process properly and contact lenders that are willing to extend you a loan as per your requirements.
04. Don’t borrow from unrecognized lenders
Borrowing from unrecognized lenders is a mistake that can prove to be very costly in the future. Sometimes the nature of the requirement or emergency is such that we end up making mistakes that have the potential to destroy the future.
It is always better to borrow from recognized lenders and avoid traps that are too good to be true. It is mainly because you have the protection of regulators that ensure a level playing field for all companies and keep consumer interest paramount.
05. Don’t ignore the fine print
Please note that this is a financial transaction that is governed by a set of terms and conditions. To meet all the terms and conditions, you first have to be aware of all the terms and conditions of the loan that you are taking.
It is always better to read through all the terms and conditions involving the transaction. It is better to be aware of all the fees and penalty charges that can be levied by the bank or NBFC.
Conclusion
Always consider above mentioned do’s and dont’s while taking hassle free instant personal loan.
