Saving, investing and making money with technology

Credit Score – Crucial Factor that Shows your Creditworthiness

A Personal Loan is the go-to solution for most people whenever they need a quick financial fix. They’ve long been hailed as the most convenient solution for most financial problems that come up in life. But, how perfect is a Personal Loan? Is this quintessential loan going to really fix all your financial problems and worries?

To be fair, a Personal Loan can assist you in a plethora of ways that no other kind of loan can. Be it a vacation, buying a new car, or giving your beloved the perfect anniversary gift, a Personal Loan can help you achieve all these and more. This is why, it’s one of the most easily acquired and sought-after loans.


However, a Personal Loan, although seemingly perfect, can sometimes prove to be unaffordable if you haven’t been careful while signing up for one. They’re also notorious for their high interest rates, which may burn a hole in your pocket.

So, what can a borrower do about it? Surely, you cannot just give up Personal Loans but you can definitely take steps to reduce the debt burden. Let’s find out how.

What is a Personal Loan?

A Personal Loan is an unsecured debt sanctioned by

most banks and NBFCs. An unsecured debt is one where you don’t have to submit any collateral. This means that you won’t be losing any asset if you fail to repay the loan. But, on the flip side, due to the unsecured nature of the loan, lenders will critically assess your credit score before sanctioning the loan.

Also, before you apply for a personal loan, you need to assess your repayment capability so that you don’t default in the future. You can use many tools at your disposal like a Personal Loan interest calculator, which will help you determine the loan amount you are eligible for. Applying for a loan higher than that upper limit, may lead to rejection of the loan application.

1)   Check your Credit Score

Many applicants underestimate the importance of their credit score/profile/history. Whatever you call it, this is the thing any lender would check first as a part of your loan eligibility. Think of your credit score as a judgement of your ability to repay, because it will reflect how reliable (or untimely) you are and how many times you have defaulted on payments. These things can either speed up your loan request or shut it dead in its tracks. On the other hand, a favourable credit history might even get you a low rate of interest and a tenure that you prefer. In case you don’t have good credit score then their is a way that will help you to improve the credit score.


2)  Find the Category that Suits you

There are Personal Loans that fit a multiple categories of individuals; each with their own unique features. These categories include loans for unemployed people, small scale business start-ups, and salaried individuals. More specific categories include small business loans for women, medical loan, or even a corporate loan. Read up on each category and find out what best fits the reason you need the loan. This will get you the loan at the interest and repayment tenure that best suits your financial goals.

3)   Save on Credit Card

A huge part of the reason why Personal Loans are preferred over any other kind of loan is that they can be acquired at much lower interest rates than your average credit card. This is why if you’re looking at a massive expense, it’s best to opt for a Personal Loan than to pay for it through your credit card. But keep in mind that faulting on payments could reflect poorly on your credit score. It ultimately boils down to your position as a salaried or self-employed individual and reputation for repayment or lack thereof.

4)   Tenure and EMI

These are the two most important factors after your interest rates, which will directly influence your entire Personal Loan experience. Opt for a secured loan as they tend to have lower rates of interest than unsecured loans, for the obvious reason that you submit assets to assist the bank in case of a loss or default in payment.

Tenure and EMI

A Personal Loan tenure can be anywhere between 12 to 60 months and the EMI will depend upon your monthly income, so make sure you determine them keeping all your expenses in mind. Use an EMI calculator to assist you with the same.

5)   Hidden Charges

Processing fees, operational charges, and service fee come with any loan; and a Personal Loan is no different. There may even be an origination fee so it’s important to be aware of these costs lest they creep on you and catch you off guard. Some banks/NBFCs will give you unbelievable interest rates but with outrageous handling fee, so it’s better to opt for a lender that gives you a slightly higher interest rate, with moderate to low handling fees.


These are some of the ways in which you can save more on your Loan and also reduce the rate of interest for personal loan.


He is an advisor with an experience of more than 7 years. He has worked for topmost firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, He is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog. Tech Brief Stuff

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