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Personal Loan EMI: Obtaining a personal loan has become much easier today than in the past. Many banks and NBFCs claim to approve loans within minutes. However, a personal loan taken in haste can put a heavy burden on your finances.

Interest rates on personal loans are higher than those on home loans or car loans. With a little caution, however, you can save thousands of rupees. Let us look at five things to consider before taking a personal loan.

1. Improve your CIBIL score first

If your CIBIL score is 750 or higher, banks are more likely to offer you a loan at a lower interest rate. Conversely, a low score could lead to a higher interest rate or even loan rejection.

Suppose two individuals take a personal loan of ₹5 lakh for a tenure of 5 years. One gets an interest rate of 11%, while the other gets 15%. This 4% difference in the interest rate could result in an additional interest payout of approximately ₹62,000.

Interest Rate    Estimated EMI    Total Interest
11%    Approx. ₹10,870    Approx. ₹1.52 lakh
15%    Approx. ₹11,895    Approx. ₹2.14 lakh
2. Compare offers from multiple banks first

Do not simply accept the first offer you receive from a bank. Compare interest rates, processing fees, and other terms and conditions across at least 3–4 banks and NBFCs.

Often, even the bank where you hold your salary account may not offer the cheapest loan. Comparing options online takes only a few minutes but can lead to significant savings.

3. Borrow only what you need

Even if a bank is willing to offer a loan of ₹10 lakh, it is not necessary to borrow the entire amount.

If you need ₹6 lakh, borrow only that much. A larger loan amount means higher EMIs and higher interest costs. This increases your financial burden and could do more harm than good.

4. Look beyond the interest rate; consider other charges too

Many people make decisions based solely on the interest rate. However, processing fees, foreclosure charges, late payment penalties, and other fees also impact your finances.

Before taking a loan, inquire about the total cost involved; this will help you understand the true cost of the loan.

5. Align your EMI with your income

Choose an EMI amount that you can comfortably pay every month. Aim to keep the total EMI outgo within 35% to 40% of your monthly income.

If the EMI is too high, the risk of default increases in the future, which can also negatively affect your CIBIL score.

The most important point regarding personal loans

Personal loans are unsecured (offered without collateral), which is why they carry higher interest rates. However, maintaining a good CIBIL score, comparing offers from different banks, and borrowing only what you need increases your chances of securing a lower interest rate. Rushing into a loan is less beneficial than making a proper comparison.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.