5 Occasions when you should avoid taking a Personal Loan

Summary: Personal loans can be a great way to get money quickly, but there are times when you should avoid taking one. Here are 5 cases when you should avoid one!

04 Jan 2023 by IDFC FIRST Bank

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A personal loan can help you cover various miscellaneous needs quickly. They are easy to get, personal loan interest rates are usually competitive and pocket-friendly, and you can settle them in due course at your chosen pace. Yes, a personal loan undoubtedly offers some excellent benefits.

But before you take a loan, you must know how to calculate a personal loan interest rate. This can help you plan your loan requirements, pick a suitable lender, and bag a cost-effective deal. Read on to learn more about the personal loan calculation formula and how to use it to your benefit.

How to calculate interest on Personal Loan in India

The rate of interest is calculated based on the principal amount. Here is the formula:
Interest paid = Principal amount x Interest rate/ 12 (months in a year)
So, if you borrow Rs 15 lakh and the loan amount interest rate is 11%, your interest rate for the first month will be:
Rs 10,00,000 x 0.11/12 = Rs 9166.66

In this example:
The principal amount is Rs 10,00,000
The interest rate is 11%
And to calculate the interest for the first month, you divide the figure by 12.

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Why is it important to understand the Personal Loan calculation formula?

The interest rate can help you understand the value of each Equated Month Instalment (EMI). The EMI is the sum of the principal amount along with the interest component. Therefore, by calculating the interest, you will be able to plan your budget for the entire loan tenure.

How to get the best interest rate on a Personal Loan

Here are some things you can do to get a reasonable personal loan interest rate:

· Maintain a high credit score:

The credit score is a three-digit figure that allows prospective lenders to determine your creditworthiness. The higher the credit score, the better the interest rate you can get. Paying all previous loans and clearing credit card debt on time can help you maintain a good credit score. Ideally, you should aim for a score of 750 and above.

· Compare different lenders:

The interest rate can vary; therefore, comparing all loans and lenders is essential to pick the most cost-effective one. For instance, IDFC FIRST Bank offers personal loans with interest rates starting at just 10.49%. Moreover, you can avail of a loan of up to Rs 1 crore.

· Ensure a steady employment history:

If you have a consistent employment history for many years, you can avail of a low-interest rate more easily. However, if you have hopped jobs recently, you may have to pay a higher interest rate. The reputation of your employer is also a major factor that influences the loan and interest rates, and thus the EMI payments.

Conclusion

Personal loan interest rates can play a critical role while shortlisting a loan. Lower rates benefit you in the long run and help you save money. Therefore, it is important to understand how interest rates are calculated to be able to compute the interest and plan your budget in advance to avoid any lapses or inconveniences later.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.