Personal loans: Check THESE key points before you decide to borrow

Household debt of an average Indian household has grown faster than the growth of financial assets since the pandemic, a recent RBI study has revealed. While average assets have grown by 48 percent between 2019-2025, debt has increased by 102% during this time, the study shows.

Given all this, keeping a check on excessive borrowing, i.e, personal loan, becomes all the more important.

Here we list out the key points before you decide to borrow.

Check these points before you borrow

I. Absolutely essential: At the outset, you must see if the loan is absolutely essential or not. There could be several reasons for raising a loan, but mandatory reasons are those which can not be deferred or cancelled. For instance, a loan for a house is sort of mandatory, but for travel and for buying luxury items, it is not.

II. House vs everything else: Another way to distinguish between different reasons is to be aware that a home loan is important. And a loan for everything else is perhaps not equally important.

However, there could be other important reasons to borrow, e.g., education, a car and for emergencies. Meanwhile, it is vital to know that one could raise a personal loan when the assigned loan amount for these reasons falls short of your total requirement.

III. Loan amount: Another factor that matters is the amount of the loan. For instance, if you need ₹2 lakh, you should refrain from borrowing ₹2.5 lakh. With added interest, this would cost you much more than an extra 50K. Additionally, you should avoid taking a higher loan just because you could raise money from a bank.

For instance, when you can afford to buy a car for ₹5 lakh, you should refrain from spending ₹10 lakh just because you could raise a loan for ₹10 lakh.

IV. Fair comparison: Before you take a loan, make sure you compare the interest rates charged by different banks. This will help you keep your liabilities lower.

V. Loan against FD/mutual funds: Additionally, you can take a loan against an FD or a mutual fund. This will turn out to be cheaper than a personal loan, which – being unsecured – charges a higher rate of interest.

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