Banks and financial institutions offer a wide range of loans across various needs. With time, technology has managed to make things faster and more efficient when it comes to loan applications. Loans might now be readily available to people. However, this has not changed the importance of exercising prudence before availing of a loan.

Here are some important things that you need to keep in mind while applying for a loan:

1. Borrow as much as you can repay

With mobile app-driven loan approvals, many people end up taking a loan without giving it a lot of thought. This can lead to a debt trap. Hence, it is important to always borrow only as much as you can repay without disrupting your other financial goals. The best way to do this is to keep an eye on your loan-to-income ratio. 

2. Choose the tenure carefully

Another important aspect that you need to focus on is the tenure of the loan. Usually, people opt for a longer tenure to lower the EMI. However, you need to remember that a longer tenure implies that you will have to pay higher compound interest to the lender.

We understand that there can be times when you would have to increase the tenure to fit the EMI to your pocket. Many lenders offer an option to increase the EMI amount every year in line with the increase in income. As borrowers, you should ensure that you choose the tenure carefully. You can also use EMI calculators to track your progress.

3. Check your credit score regularly

A healthy credit score opens more possibilities for availing of a home loan and can also get you a discounted rate. Ensure that you check your credit score regularly and keep it above 650.

4. Repay on time

Missing an EMI can lead to penal charges and additional interest that can increase your overall outstanding amount. Also, it can impact your credit rating making it difficult to get a loan in the future. Hence, ensure that you don’t miss any installments.

5. Don’t borrow to invest

Most investment experts will recommend against using borrowed funds for investing. While fixed deposits would not be able to match the interest you pay on the loan, equities and other market-linked investments that offer better returns are too volatile and can result in losses. Hence, borrowing money to invest is not a recommended strategy.

6. Compare loan rates before signing the dotted line

The interest rate on loans can vary from one financial institution to another. Hence, it is prudent to shop for loans and consider all options before deciding.

7. Understand the fine print

If you are going to sign a legal agreement, it is prudent to understand every clause that you are agreeing to. There can be hidden charges, pre-payment terms, etc. that you need to be aware of. While the details might seem too bulky, it is important to read and understand the fine print to have a fair assessment about the terms that you are agreeing and signing up for.

Key Takeaways

  • Borrow as much as you can repay
  • Choose the loan tenure carefully
  • Check your credit score regularly
  • Repay your loans on time
  • Don’t borrow to invest
  • Compare loan rates before signing the dotted line
  • Read and understand the fine print
  • Understand fixed and floating rate of interest
  • Plan for the down payment well in advance
  • Take a loan only when needed
  • Assess the prepayment terms carefully
  • Plan for collateral and/or co-applicant for the loan (if applicable)
  • Compare loan offers


Q1. What do I do if I have a bad credit score?

If you have a bad credit score, then you need to contact the credit rating company to get it corrected. If the score is low because of some error, then it can be rectified in no time. However, if it is low due to some defaults in the past, then you might have to work hard to improve it.

Q2. I need Rs.50,000 but I can get up to Rs.2 lakh personal loan based on my income and credit score. Should I opt for it and invest the rest in stocks to make higher returns?

While there is no rule that stops you from doing so, many investment experts are against the notion of borrowing to invest. Also, stock investing can be risky. If the market moves contrary to your expectations, then you can book losses and have a bigger loan outstanding. Hence, it is prudent to take a loan based on your needs alone.

Q3. Can I change my EMI date?

While many lenders allow borrowers to change the EMI, you will have to check the terms and conditions of your loan to know for sure.