Planning to borrow? A beginner’s guide for personal loans 2025 | Mint

Being in a financial crisis is pretty normal for any of us at any time. And if that happens – which the god may forbid – what can you do to come out of the crisis? Either you take a bank overdraft, borrow from a friend or else – raise a personal loan.

Before you opt for this hitherto unexplored option, you need to first understand everything from the key reasons of raising a loan to the factors that you should consider before opting for a lender and importantly the caution you should exercise.

5 key reasons of raising a personal loan

I. Wedding: For the big Indian wedding, money is flown like water. Typically, families start saving money for their children’s wedding several years before the wedding is scheduled, yet the total corpus may fall short of the total requirement. So, there is no harm in raising a personal loan for the marriage.

II. For buying an expensive item: If you want to give an expensive gift to your loved one, you may even consider raising a personal loan for the same. This is because the special gifts are typically meant for an anniversary, and you obviously do not want to offend your partner’s sensibilities for the sake of saving money.

III. For vacation: If you want to go on a vacation and your savings in the bank are cocking a snook at you then there is a little that you can do apart from raising a personal loan to satiate your cravings.

IV. Renovation of house: You may have to renovate your house and have already taken a massive home loan then the only option to explore right now could be to raise a personal loan.

V. Emergencies: Apart from the above mentioned reasons, you may face any emergency such as someone you know is admitted in a hospital.

How to choose a lender

If you have decided that you plan to raise a personal loan then you now have to decide which lender to choose from. It could be a bank, an NBFC (non banking financial corporation) or a fintech mobile app. These are some of the tips to follow:

1. Bank: Lenders with which you share a long-term banking relationship are ideal to raise personal loans from. One should, however, compare the interest rate charged by your bank with that of other banks that are offering personal loans.

2. Opting for NBFC: When a bank is unwilling to offer a personal loan, you can always approach an NBFC or non banking financial corporation (NBFC) for the same. The interest rate charged by an NBFC is typically higher than what is charged by a bank.

3. Lending apps: Apart from banks and NBFCs, you can also seek a fintech lending app to borrow the money from. There are plenty of lending apps such as KreditBee, mPokket and MoneyTap.

4. RBI-recognised: Before choosing a lender, you should make sure that the mobile application, bank or NBFC is authorised by the RBI. You should also make sure that the interest rate charged by the bank is not exorbitantly high.

Use EMI calculator

Before you opt for a lender, it is recommended that the borrower use an EMI calculator to calculate the monthly instalment that they need to pay. This can be ascertained on any personal loan EMI calculator by entering three key details: amount of loan, loan tenure and rate of interest.

Let us understand this with an illustration:

Suppose, you are planning to raise a personal loan worth ₹10 lakh offered at 10 percent per annum and the loan duration you opted for was 3 years. You can enter these details in the EMI calculator, and it will tell you that the monthly EMI that you need to shell out is ₹32,267. As you change any of these factors, your monthly EMI will change accordingly.

Exercise caution

Before you sign the dotted line, you should exercise caution and make note of following key points:

1. Interest rates: Compare the interest rates offered by different lenders before you opt for one. It is always recommended to opt for the bank which is charging a lower rate of interest than the rest.

2. Processing fee: It is a small amount that you need to bear from your own pocket and is deducted before the disbursal. There could be a bank which is offering an instant loan at a reasonable rate of interest but if the processing fee is unusually high, then you may want to reconsider your decision of going with this bank.

3. New player: Be very careful of raising a loan from an obscure lender. Ideally your lender should be a reputable bank or an NBFC. And if you are opting for a fintech lending app, then you should be extra careful of your choice.

You must ensure that it is an RBI-approved entity and its existing customers had a good experience with it – something you can find out by checking online reviews and asking around about it.