Personal Loan: Know These 6 Crucial Things Before Taking a Loan from Any Bank – Save Yourself from Future Troubles

In today’s fast-paced life, unexpected expenses can arise anytime — whether it's a medical emergency, a wedding, children's education, or other personal needs. In such cases, a personal loan often seems like a convenient financial solution. But while personal loans are easy to get, there are hidden risks that many people ignore — and end up regretting later.

If you're planning to take a personal loan, this article is a must-read. We’ll explain 6 important things you should know before applying for a personal loan, so that you can understand both the benefits and risks — and avoid costly mistakes.

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🏦 What is a Personal Loan?

A personal loan is an unsecured loan, which means you don't need to pledge any asset (like property or gold) to get the money. Banks or NBFCs (Non-Banking Financial Companies) offer personal loans based on your income, credit score, and repayment ability.

People often take it for emergencies — but a personal loan taken without proper understanding can cause financial strain in the long run.

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Let’s look at the 6 important things you should know before taking a personal loan:

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1️⃣ High Interest Rates

Personal loans usually come with high interest rates, ranging from 10% to 24%, and sometimes even higher. This is much more than home loans (6.5%–9%) or education loans.

Why such high rates?
Since personal loans are unsecured and risky for banks, they charge higher interest to cover the risk.

Example:
If you take a ₹3 lakh loan for 3 years at 18% interest, you may end up paying around ₹4.25 lakh — ₹1.25 lakh as interest!

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2️⃣ Negative Impact on Credit Score

If you fail to repay your EMI on time, your credit score (like CIBIL) drops sharply. A poor credit score can make it difficult to get other loans in the future — like a home loan or car loan.

Low credit score means:

• Rejected loan/credit card applications

• Higher interest rates

• Banks will consider you a risky borrower

Tips to maintain a healthy credit score:

• Pay EMIs on time

• Don’t borrow beyond your limit

• Avoid applying for multiple loans at once

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3️⃣ No Tax Benefits

Unlike home loans or education loans, personal loans usually don’t offer any income tax benefits on the interest you pay.

What this means:
The entire interest amount is paid out of your pocket — and there’s no tax saving at all.

In rare cases, if the loan is used for home renovation or business purposes with proper documentation, some tax benefit might apply — but consult a tax expert for this.

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4️⃣ Risk of Falling into a Debt Trap

Since personal loans are easy to get, many people take them for non-essential spending — like vacations, gadgets, or home decor.

The result:
One loan leads to another, and soon you find yourself stuck in a cycle of debt.

To avoid this:

• Take personal loans only when truly necessary

• Repay one loan before taking another

• Ensure your EMIs don’t exceed 40% of your monthly income

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5️⃣ Additional Fees and Hidden Charges

Personal loans come with many charges apart from interest, which can make the loan more expensive than you expected.

🔹 Processing Fee:

• Usually 1% to 3% of the loan amount

• For ₹3 lakh, this can be up to ₹9,000

🔹 Pre-payment Charges:

• If you repay your loan early, banks may charge a penalty

🔹 Late Payment Fee:

• Heavy fines for missing EMI due dates

🔹 GST:

• 18% GST is applied on all service charges

So:
Always check the fine print before signing the loan agreement.

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6️⃣ Short Repayment Tenure

Personal loans usually come with a short repayment period of 1 to 5 years (in some cases up to 7 years).

Short tenure means:

• Higher EMI amounts

• More pressure on your monthly budget

• May force you to cut down on other essential expenses

Smart advice:
Use an EMI calculator before taking the loan, and ensure your monthly budget can handle the repayment.

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✔️ Things to Do Before Taking a Personal Loan

✅ Identify if the loan is truly necessary
✅ Compare interest rates and terms from multiple banks
✅ Check your credit score beforehand
✅ Use EMI calculators to estimate monthly burden
✅ Understand all charges and conditions carefully
✅ Read all documents before signing

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❌ When Should You Avoid Taking a Personal Loan?

🚫 When the expense is not urgent or can be postponed
🚫 When you already have high debt or EMIs
🚫 When you're unsure of your repayment capacity
🚫 When you don’t understand the loan terms properly

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📌 Conclusion

A personal loan is a useful financial tool — but only when used wisely. It comes with high interest rates, no tax benefits, and strict repayment terms. If not managed properly, it can impact your credit score and lead to long-term financial problems.

So take a personal loan only when necessary, and make an informed decision after evaluating all pros and cons.

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🙋 Frequently Asked Questions (FAQs)

Q1. Is it safe to take a personal loan?
👉 Yes, if taken from a trusted bank or NBFC and you understand the terms clearly.

Q2. How soon is a personal loan disbursed?
👉 Usually within 24 to 48 hours, if all documents are in order.

Q3. Do salaried people get personal loans easily?
👉 Yes, especially if they have a stable income and a good credit score.

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Your money, your decision — choose wisely!
A well-planned personal loan can be helpful. But a rushed or uninformed decision can disturb your financial health.