Golden rules for personal loans!

By BankBazaar | March 6, 2014

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Personal loan being a very popular financial instrument for riding a short term financial crunch, many people go for it without too much introspection. However, it is true that personal loans are a real help in emergencies, as one can avail it without any collateral as security, depending on one’s financial health and past payment credit history.

Personal loans are easily available for both self employed and salaried professionals, with a short processing period ranging from 1-4 days. But before you take the plunge of borrowing funds through a personal loan, there are certain rules that one must follow to avoid the debt trap of high interest rates and or weak repayment. Here is a look at the top five golden rules one must follow before applying for a personal loan.

Rule #1: Take a personal loan only when absolutely necessary:

The increasing age of consumerism and the swift availability of personal loans have made many people opt for loans for any purchases, even when they have sufficient balances in their accounts. While personal loans can be availed as easy as a click of a mouse button now, financial planners consider personal loans as a red mark on your balance sheet. Everyone faces a financial crunch at one point or the other. Personal loans can be a good way to bypass the immediate need of funds but the key is to have it only in case of emergencies. Unless absolutely necessary, personal loans are best avoided as they can severely dent the overall financial plan in the medium to long term.

Rule #2: Avoid multiple loan applications:

Before filing for a personal loan it is imperative to do one’s complete homework about the intricacies of the loan. Some people have a habit of filing multiple loan applications at different banks, if they are not sure that their loan may be approved from one bank. Filing multiple applications is a bad idea since banks and other non banking financial companies take a call on considering or rejecting a personal loan application depending on the individual’s credit score. If in case multiple loan applications are brought to bank’s notice through verification agencies or other, it can easily make lenders suspect you. So anyone scrapping around for a personal loan frantically is likely to face loan rejection even after complete document submission as they tend to lose their credibility.

Rule #3: Compare interest rates:

Personal loans interest rates offered by banks vary a lot. Some banks will have seasonal discounts for personal loan interest rates, while some others will have different schemes for various MNCs and privileged customers. So it is always advised to compare various schemes before simply saying ‘yes’ to the tele-marketing executive who offered you a good amount.

If you are a working professional, approaching a bank that has an official tie up with your company providing salary accounts can get you a better rate of interest than others. Another thing to note while comparing interest rates is to know that flat personal loan interest rates that appear to be cheaper usually end up are more expensive in the long run. As a general rule it is recommended to opt for monthly reducing balance option compared to half-yearly reducing or flat-rate options.

Rule #4: Focus on the foreclosure clause:

Many banks and financial institutions offering personal loans do not allow partial repayment of the loan. Being charged a higher interest rate, banks ideally want the borrower to continue paying their equated monthly installment or EMI for the full tenure. Check with your bank the charges for prepayment especially if you are planning to pay off your loan in lump sums at some point in time in the future. Opt for those that allow 0% prepayment charges.

Rule #5: Borrow what you can repay:

Personal loans are quite lucrative when faced head on with a financial crunch. If used in case of an emergency period, personal loans are a good financial tool. But most financial experts recommended that any personal loan amount must not exceed more than 30-35% of your total income.  Considering the high number of loan defaults in personal loans, it is essential to borrow what you can payback comfortably to the bank. Taking a personal loan of high amount and then defaulting on the EMI’s make bring with it bad credit score line ruling you out for any other loans in the future.

Personal Loan Comparison Chart:

Bank/NBFC Interest Rate Processing Fee Prepayment charges (%)

HDFC Bank13.99%-20%0.8% – 1.75% (for Special Companies)

2% (HDFC)4%ICICI Bank13.5%-18.5%0.8% for special companies else 2%5%Bajaj Finserv15%-17%Up to 2%NilKotak Bank13.75%-19%2%5%SBI18.5%NANA


Compare personal loans offers of various banks and NBFCs in India & at Personal loan is just at a click away with to meet your urgent cash needs for any purpose.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit for the latest rates/offers.
Category: Loans Personal Loans

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