In today’s digital-first world, personal loans have become one of the most accessible forms of credit for salaried and self-employed individuals alike. Whether it’s for a medical emergency, wedding, vacation, or consolidating debts — a personal loan provides quick, collateral-free funding with flexible repayment options.
But with convenience comes caution. A wrong decision or oversight can lead to high EMIs, debt traps, and financial stress. That’s why it’s essential to make an informed choice.
In this blog, we will explore the top 5 mistakes to avoid while taking a personal loan in India, and offer expert insights on how to choose the right loan based on your needs.
✅ What is a Personal Loan?
A personal loan is an unsecured loan offered by banks, NBFCs, and fintech lenders without the need for collateral. Loan amounts range between ₹10,000 to ₹40 lakh (or more), with tenures between 12 to 60 months. Since it’s unsecured, the interest rate is higher than secured loans.
🔍 Top 5 Mistakes to Avoid When Taking a Personal Loan
🛑 Mistake 1: Not Comparing Loan Offers Across Lenders
Many borrowers take a personal loan from their existing bank without comparing interest rates or terms with other lenders. This can cost you thousands in additional interest.
| Lender | Interest Rate (p.a.) | Processing Fee | Prepayment Charges |
|---|---|---|---|
| HDFC Bank | 10.5% – 21% | Up to 2.5% | 2% – 4% after 12 months |
| SBI | 11% – 15.3% | Nil to 1% | Nil after 6 months |
| Axis Bank | 10.49% – 20.75% | Up to 2% | 2% – 5% depending on time |
| Bajaj Finserv | 11% – 25% | Up to 3.99% | 4% or higher |
| MoneyTap | 13% – 24% | Variable | Variable |
💡 Tip: Use online aggregators like BankBazaar, PaisaBazaar, or official bank sites to compare loans and find the best deal.
🛑 Mistake 2: Borrowing More Than Required
It may be tempting to borrow a higher amount just because you’re eligible, but over-borrowing leads to:
- Higher EMIs
- Increased interest burden
- Longer repayment tenures
Instead, borrow only what you need and can repay comfortably. Use online personal loan EMI calculators to check affordability based on your income.
✅ Example: If you earn ₹40,000/month, limit EMI to 30–40% of income = ₹12,000–₹16,000.
🛑 Mistake 3: Ignoring the Fine Print (T&C)
Most borrowers sign the loan agreement without reading the terms and conditions carefully. Hidden charges can include:
- High processing fees
- Prepayment/foreclosure charges
- Late payment penalties
- Insurance bundling
These costs can significantly impact your loan’s total cost.
💡 Pro Tip: Always ask for a loan amortization schedule, and check for zero prepayment penalty options if you plan to repay early.
🛑 Mistake 4: Choosing a Long Tenure Without Understanding the Impact
While longer tenure (4–5 years) means lower EMIs, it also means paying more interest over time. Many borrowers opt for longer tenures to reduce EMI, but end up paying 30–50% more in total interest.
| Loan Amount | Tenure | EMI (at 13% p.a.) | Total Interest Paid |
|---|---|---|---|
| ₹3 lakh | 2 yrs | ₹14,280 | ₹42,710 |
| ₹3 lakh | 5 yrs | ₹6,843 | ₹1,10,580 |
✅ Choose tenure wisely. Shorter tenure = more savings.
🛑 Mistake 5: Ignoring Credit Score and Eligibility Criteria
Your credit score plays a major role in:
- Interest rate offered
- Loan approval speed
- Maximum loan amount
A CIBIL score above 750 gives you access to the best offers. Applying without checking your credit score can lead to:
- Application rejection
- Multiple hard inquiries that reduce your score
- Higher interest rates due to perceived credit risk
🔍 Check your credit score for free on CIBIL, Experian, or via fintech apps like Paytm, KreditBee, and OneScore.
🧠 Bonus: Other Mistakes to Watch Out For
Taking loans from unauthorized apps: Avoid unknown apps or unregulated lenders that charge hidden fees or harass borrowers.
Not calculating total loan cost: Always check APR (Annual Percentage Rate), not just flat interest.
Skipping insurance understanding: Some lenders bundle credit insurance, which adds cost. Know what you’re paying for.
✅ How to Take a Personal Loan the Right Way
| Step | What to Do |
|---|---|
| Check your CIBIL | Use free score checkers (OneScore, Paytm, CIBIL) |
| Compare lenders | Use aggregators or bank websites |
| Calculate EMI | Use personal loan calculators |
| Apply digitally | Use official apps/websites of trusted banks/NBFCs |
| Upload documents | Aadhaar, PAN, salary slip, bank statements |
| Accept terms | Read all fees, charges, foreclosure terms carefully |
| Repay on time | Set up auto-debit or ECS to avoid missing EMI |
🎯 Final Thoughts
A personal loan can be a useful financial tool if used wisely. But ignoring fine print, over-borrowing, or choosing the wrong tenure can trap you in unnecessary debt. By being aware of these 5 common mistakes, you can make smarter financial decisions and enjoy the benefits of a personal loan without regrets.
