Personal Loan

Applying For Personal Loans Online: 5 Dos and Don’ts


The middle class has typically been the one bearinb the greatest brunt of taxes, rules and regulations. With their current salary and deductions, their requirements are barely met and they always end up living end to end. In such situations, it is difficult when off-the-track situations have to be financed. Personal loans come as a handy financial tool in such cases. Thanks to digitization now, it is easy to apply for and has a hassle-free repayment process. However, with personal loans being insecure, they often come with a higher rate of interest. Here are some Do’s and Don’ts when it comes to applying for a Personal Loan:

Here is what you should do

1 Only Borrow however much you can repay:

Borrowing more than you can repay will put you in a lot of obvious problems. Starting from your mounting debt to your crumbling credit score, defaulting your loan payment continuously is a criminal offence.

  • Borrow only the amount of money you require and can pay back in regular installments.
  • While borrowing money, try to ensure your EMIs do not exceed 1/10th of your income.
  • On the flip-side, if you extend the duration of your loan and payback, interest keeps accumulating increasing the net amount. Hence, right at the start, make sure you have a decent loan-to-income ratio.

2 Keep the Tenure short

The tenure for a personal loan can go upto almost 5 years. Infact, the longer the tenure, the smaller the EMIs and hence the stress on your monthly income goes down. While a long term tenure like that does sound tempting, it also increases the net amount you are paying by almost 2 fold. The more money you have left to pay, the more is the interest charged. Hence, keeping your tenure short can cut down your net payment, and rid you of your loan earlier.

3 Calculate the rate of interest

Getting a low rate of interest on your loan can save you a lot of money. The interest levied on your loan is not random, it depends on your lender and your current credit score. If you meet the lender’s criteria well and are able to convince them of your low risk, the interest rates drop. Compare your options between different banks and instant personal Loan apps to see where you  might get the best deal. Try keeping your credit score within a decent range to avoid denials.

4 Choose a lender after studying a few options carefully

The lowest rate of interest does not always mean it is the best option. Study a few options carefully, and look at choices outside your partner bank. Compare rates of interest along with duration to see how much you actually end up paying for the amount borrowed.

5 Understand the fine print

Be sure to read the legal document well so that you do not surpass any important information or possible loopholes. Reading the terms and conditions can save you from any unpleasant and nasty surprises, such as upfront interest charges and annual insurance premiums.

Do not do the following:

1 Automatically choose the loan with the lowest interest rate

As mentioned previously, the lowest rate of interest does not always imply that it is the best loan. Choose a loan which best fits your situation. This should take into account your credit score, the interest rates and the duration of the loan. A bank where you already have an account may be more willing to give you a loan, as opposed to a bank where you have had no previous experience with.

2 Lie in your loan application

Whatever you do, never lie on your loan application. Inconsistent and false information will lead to a denial of loan and might also affect your credit score. If you are able to successfully acquire the loan, and inconsistencies are tracked later, this might lead criminal charges or heavy fines at the discretion of the lender.

3 Default on your payments

Anyone who has defaulted their payments will know the horror this is accompanied by. Apart from the constant following up and enquiries from the lender’s side, defaulting your payment comes with a great plunge in your credit score and excess cash drainage. This prevents you from taking any loans in future and may also blacklist you from opening accounts in partner and associated banks.

4 Keep an unrealistic duration and EMI

Everyone wants to pay off their debts as fast as possible. However, this comes with its fair share of pressure and high payments. A very short duration is accompanied by high EMIs. If the EMI is too high, it could always lead to the risk of defaulting the payment, or living life a little too frugally. Hence, it is in our best interests to choose an optimum duration that is not too long or short. A lot of instant personal Loan apps set the duration for you with a buffer period of 3 months during which no interest is taken.

5 Ignore your credit report

Your credit report can be amongst the few important items standing between you and you personal loan. A credit score is a number that represents the risk that a lender takes while lending you money. Starting 2017, the Reserve Bank of India (RBI) has made it compulsory to provide one free annual credit report to taxpayers – so you can check your credit score for free. In India, your credit score is popularly called the CIBIL score (after the Credit Information Bureau of India Limited) and can be checked online for free. It is based on your past and present credit history. Do not ignore your credit report or do anything to affect it, as this could cancel all opportunities for a loan.

With the convenience and lack of a collateral when it comes to a personal loan, more an more young working professionals are turning to a personal loan in order to cover any sudden expenses. The digitization of the entire process has made it all the more easier, thanks to instant personal loan apps like EarlySalary. Personal Loans are now just a button away!

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