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Taking Loan Check these 8 Factors before you Take it

We might not always have the funds necessary for our financial needs. In case you do not have the required funds at your immediate disposal, you could consider applying for a loan. You can avail loan through a bank or a Non-Banking Financial Company (NBFC). Loans come with an interest rate and a fixed repayment period. Loan rates, tenure of repayment and loan amount are determined by the lender. You should to check the features of the loan based on your financial health.  

8 Factors to Consider while Taking Loan

1. Check credit score before taking loan  

Before approving a loan, lenders check your credit report and assess your creditworthiness. In case your credit health is poor i.e. low credit score, the chances of your loan approval take a hit. Hence, it is recommended to check your credit score and credit report before taking loan. If you have a bad credit score, you can look for ways to improve the score. A higher score automatically increases the possibility of loan sanction.  

Your credit report is a summary of your credit history, debt repayments and mortgages. It gives insight into your financial status. Credit score is a 3-digit number which acts as a quick indicator of your credit health.  

2. Identify the type of loan you need  

There are different types of loans available for specific financial needs. Before you apply for a loan, it is important for you to choose a type of loan which is best suited for your requirement. 

A few examples of loans are: 

  • Personal loan: 
  • financial purposes  
  • Comes at a higher interest rate than the other loans 
  • Education loan: 
  • Offered to students for educational purposes  
  • Lower interest rates 
  • Home loan  
  • Offered to individuals who wish to construct or buy a house  
  • Car loan 
  • Used to purchase a car  
  • Business loan 
  • Given to an individual who wishes to start or expand a business  

3. Choose a lender  

  • Banks, Housing Finance Company (HFC) and NBFCs offer loans at attractive interest rates. 
  • Marginal Cost Lending Rate (MCLR),
  • The MCLR system is transparent. 
  • In case of an MCLR-based loan, you can check at the intervals at which the rates would change. 
  • PLR rates can vary at the discretion of the lender. 
  • NBFCs tend to be more lenient about your credit score as opposed to banks. 
  • Consider the pros and cons of both the rate-systems before choosing a lender.  

4. Affordable EMI amount  

  • Equated Monthly Income (EMI) is a fixed payment made towards the loan on a monthly-basis. 
  • It is inclusive of the interest income. 
  • It is recommended that all your EMI payments must be under 50% of your monthly income. 
  • EMI Calculator is an online tool to estimate the EMI value for a loan scheme with a specific tenure and interest rate.  
  • You can use an ‘EMI Calculator’ before applying for a scheme to check if the EMI outflow aligns with your income.  
  • Lear the penalties involved in taking loan on credit card.

5. Opt for a short repayment tenure  

  • Longer the tenure period, smaller is the monthly outflow of EMI  
  • A smaller EMI amount could tempt you to opt for a longer tenure. 
  • However, it is advised against opting for a long tenure. 
  • The size of the total interest payout increases as the tenure increases. 
  • For a tenure of 10 years, the net interest adds up to almost 57% of the principal amount. 
  • You can shorten the tenure by increasing the EMI amount when you receive a bonus or salary increment.  

6. Timely repayments  

  • It is recommended to pay your EMI dues on time. 
  • Late payments can invite a heavy penalty from your lender. 
  • Your credit score can take a severe hit because of a missed-out payment. 
  • A poor credit score can hamper chances of availing credit or a loan in the future.  

7. Avoid borrowing a loan for investment 

  • The returns on schemes like Mutual Funds depend on market trends. 
  • In case of unfavorable market conditions, you might incur losses because of the scheme. 
  • If you have borrowed a loan for the scheme, you would have to bear the burden of the EMI repayment as well. 
  • Safer investment schemes such as Fixed Deposits (FDs) have significantly lesser interest rates compared to the interest on the loan. 
  • Hence, it is suggested to not borrow a loan for an investment loan. 

8 Read through the terms and conditions carefully  

  • It is important to read through the conditions associated with the loan. 
  • This will give you a fair idea about processing fees, foreclosure charges and late payment fees.  
  • You can also learn about the flexibility of the terms in case you need to make some modifications in the future.  


It is important to choose a loan scheme which is most compatible to your needs and long-term financial well-being. If carefully planned, loans can be a lucrative option to cover your expenses without injuring your savings. However, a loan scheme with high interest rates and inflexible conditions could negatively affect your financial health. Consider BankBazaar to browse all loan products and opt for a loan which is best suited for your needs. 

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