7 things to check before you take a personal loan

A personal loan is the quickest loan to get. No property to pledge, a few documents, and the money can reach your account in a day or two. That speed is also its trap. When a bank texts you a “pre-approved” offer at 11 at night, saying yes feels easier than reading the terms.

Take ten minutes first. A personal loan has no security behind it, so it is priced higher than a home or car loan, and small differences in fees and terms add up to real money. This checklist covers what to look at, in the order that matters.

1. Look at the total cost, not just the rate

Lenders advertise the interest rate because it is the smallest-looking number. The real price is the interest plus every fee: processing fee, GST on that fee, any insurance added to the loan, and charges for documents or statements.

Here is how that plays out on a ₹5 lakh loan over 3 years. The rates and fees below are made up for illustration, not quotes from any lender. The figures are worked out with our own EMI maths.

Offer A has the lowest rate and the highest total cost. Offer C has the highest rate and is the cheapest of the three. The EMI is almost the same in all of them, which is why comparing EMIs is not enough. Always ask for the all-in cost.

2. Read the key facts statement

Under RBI rules, a lender must hand you a short Key Facts Statement before you sign. It shows the loan amount, the all-inclusive yearly cost called the APR (which includes fees and charges), the EMI, the total you will repay, and the repayment schedule. For digital loans it must be shown at the offer stage.

• Check that the APR is close to what you were told over the phone.
• Check that the amount you receive is the amount you asked for, after the fee is cut.
• Look for insurance or “protection” charges you did not ask for.
• Use the cooling-off period. A digital loan must give you a window to exit, at least three days for a loan of a week or more, by repaying the principal and the interest for the days you held it. Check the terms in your statement.

3. Find out the cost of closing early

Your income may rise, or you may receive a bonus, and you will want to clear the loan sooner. On floating-rate loans to individuals, lenders cannot charge a prepayment fee under RBI rules (for loans sanctioned or renewed from 1 January 2026). Most personal loans, however, are fixed-rate, and a fixed-rate loan can carry a charge for closing early, often a percentage of what you still owe.

Ask three questions: Is the rate fixed or floating? Is there a charge to part-pay or close? After how many EMIs can I do either? Get the answers in writing, in the statement, not from a call.

4. Test the EMI against your income

A widely used rule of thumb is that all your EMIs together, home, car, cards on EMI and this new loan, should stay under 40% to 50% of your monthly take-home pay. Lenders apply a similar test and call it FOIR. The lower end of that range leaves room for school fees, a medical bill or a month of delayed salary.

5. Choose the tenure with care

A longer tenure makes each EMI smaller but costs more in total interest. Personal loans usually run from one to five years. Pick the shortest tenure whose EMI you can pay without strain. If you are unsure, take a slightly longer tenure and pay extra when you can, where the lender allows it.

6. Make sure the lender is genuine

• Registered. A bank, or an NBFC registered with the RBI. You can look up an NBFC on the RBI website.
• No upfront “guarantee” fee. No genuine lender asks you to pay a fee to a personal account to release or guarantee a loan. If someone does, stop.
• Careful with apps. Avoid loan apps that ask for access to your contacts, photos or messages. Digital lenders must disclose their lending partner and cannot take that access for recovery.
• Where the money goes. The loan should be paid into your own bank account, and every repayment should be to the lender’s account, not a person’s.

7. Borrow what you need, not what you are offered

The pre-approved limit is a ceiling, not advice. You pay interest on every rupee from day one. If you need ₹3 lakh for a wedding or a medical bill, a ₹5 lakh offer is a nudge to spend more. Also ask yourself whether a cheaper option exists first: a loan against a fixed deposit or insurance policy, or a top-up on an existing home loan, usually costs less than an unsecured personal loan.

Mistakes people make

• Applying to many lenders in one week. Every full application is a hard enquiry on your credit report.
• Looking only at the EMI and not at the total cost.
• Using a personal loan for an investment, such as buying shares, where the return is uncertain and the EMI is not.
• Skipping the statement because the agent says it is a formality.
• Taking a loan to repay another loan without checking the fees on both.

The bottom line

A good personal loan is the one with the lowest total cost that you can repay comfortably, from a lender you can verify. Compare at least two or three offers on the all-in cost, read the statement, and keep the EMI well inside your budget. If you would like a second pair of eyes, we compare offers from many banks and NBFCs and tell you plainly which one fits.