Things to Keep in Mind Before Applying for a Loan

Saturday Feb 01st, 2020


Whether it is about an emergency or home finance, a personal loan gives massive help in many ways. It is the quickest way to get cash without keeping your precious assets as collateral. There are many pointers that you should know before applying for a loan. This will not only increase your chances for the loan approval but will also secure you at a lower rate of interest. Here are some vital considerations while applying for a loan.

Purpose of loan:

The most crucial point to understand about the loan applying steps or process of loan approval that people often ignore is the difference between the essentials and lifestyle based needs. Pay deep concentration about the purpose of your loan and then apply for it according to the need.

Payment capacity:

It’s a thumb rule to always carefully evaluate your ability to pay the personal loan at the end of the day. EMI should not be more than 10% of your monthly salary. An amount that you can pay without stretching your monthly budget.

Credit score:

Maintaining financial discipline is quite necessary as in the long term it ensures a good financial record. Healthy financial records improve the chances of loan approval. If you have a good credit score and a sound financial score, then you can easily negotiate the interest rate with the bank. Bank would not have any problem giving you the personal loan as your credit history is functional.

Check interest rate:

Do not get carried away by the offer of a lower interest rate without understanding the full details. Banks offer lower interest rates, but they also provide a flat rate of interest, but in actual, they charge you more interest amount compared to the diminishing rate of return. In the flat rate of interest, they charge the full amount till the entire period of tenure, whereas in the diminishing rate of return, it is charged on the outstanding balance for the whole period of EMI.


There are a number of lenders that will offer you an unsecured personal loan and tell you that you meet their eligibility criteria. You should select the lender according to your requirement apart from any other factors. You will also find that the bank is offering a better offer of lower interest, but additional fees are higher comparatively, and the lender is offering a slightly higher interest, but there is no prepayment penalty. It is better to negotiate the deal with the lender.

Charges for the personal loan:

The interest amount is a high cost on personal loans, but that doesn’t mean you should ignore other charges, typically it includes:

Processing fees: It is charged for processing the documents. It can be between 0.5% to 3%. It is nonrefundable if your loan approved and can be partially refundable if the loan is rejected.

Payment fees: if you repay the loan, the bank might lose out on interest money acquired for your personal loan. The penalty is charged if you repay the loan before tenure and this can be up to 5% on the loan amount.

Other charges: Bank might charge you additional fees as well with these charges like documentation fees duplicate statement rate on EMI.

Benefits of personal loans:

A personal loan can be proved beneficial in certain conditions:

If you have higher loan interest, which might charge you hefty investment then personal loan, it can be a replacement of that loan and can convert into EMI.
Large credit card bills can be set off. A personal loan can pay off a substantial credit card balance that is being rolled over a month. Paying the minimum amount on the bill will not help you as interest is charged on the entire bill amount, and it is very high. Usually, it can be 2.5% to 3% P.M.


Do not opt for a personal loan unless it is an emergency. You can also go with other options like loans against security or property where to get a low-interest rate. Carefully read the terms and conditions of the bank or lender before applying for a personal loan without credits.

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