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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