Do’s and Don’ts before taking a personal loan

Personal loans are usually seen as a good way of acquiring instant cash when the times are hard. While the benefits of instant personal loan are many, it also does have a few aspects which can make your financial situation worse. In addition, personal loans do not have any collateral involved and you can use them as you desire. But, there are certain things that you should remember before heading for a personal loan. In this blog, we have divided them under the Do’s and the Don’ts so that when you take a personal loan, it actually ends up being useful for you and not a financial mistake.

The Do’s of taking a personal loan

Here are some of the ideal practices that you should follow:

Check the interest rate

Different lenders provide varying degrees of interest rates. As a result, it is a great idea to check your monthly EMIs, interest rates and tenures from multiple loan providers. In addition, you could also use the EMI calculator on multiple online websites to gauge which personal loan is going to be the best for you. It will also help you understand the capability up to which you can repay the loan.

Look for the eligibility criteria

There are some banks that have a wide range of eligibility criteria, and you can only get a personal loan from them once all these demands are met. On the other hand, some of them, such as Airtel offers personal loans with very minimum criteria and documentation. As a result, it is much easier to obtain your loan. 

Ensure that the loan meets the FOIR

FOIR stands for ‘fixed obligations to income ratio’, which means that your loan amount should never exceed your repayment capability. Always try to make sure that the current monthly obligations are between 30-50% of your monthly income and you will be good to go.

The Don’ts of taking a personal loan

Now that you have gone through what you should do before taking a personal loan, here’s a bit more insight into what you should not:

Check your credit score online

Your credit score is extremely important when it comes to applying for an instant personal loan. You can check your credit score online, on a variety of websites. When your credit score, or CIBIL score, is above 750, then you can easily apply for a personal loan and get the amount approved soon enough. In case, it is lower than 750, you will be charged higher interest rates, or your application could also get rejected as the lender sees you as a risk.

Apply without calculating the amount you owe to the lender

Applying for a personal loan is rather easy and effortless. But make sure that you are always on board about the amount that you need to pay back. Do remember that a personal loan also entails interest on it, which means you will pay back a higher amount than what you apply for. Make sure that you calculate the required EMIs you will be paying, else it could end up being a massive financial burden on you. Non-repayment of personal loans will affect your credit score and make you ineligible for credit in the future. 

Follow these Do’s and Don’ts to ensure that you are always on top of your personal finances when it comes to taking a personal loan.