Personal loans have been climbing steadily across the country, and many borrowers seem to be discovering that picking the “cheapest” offer is not as simple as spotting the lowest interest rate. Several lenders have been tweaking rates, adding conditions and adjusting their eligibility filters. That means borrowers may have to look beyond headlines to understand the true cost of their loan.
Industry watchers say more people could end up comparing offers closely in the coming months, especially as personal borrowing continues to expand. The actual winner, however, may be the borrower who understands how these loans work at the ground level — not the one who simply rushes into the fastest approval.
Interest rates play a huge role in shaping a borrower’s monthly load. Banks and non-banking players offer different rate bands depending on credit history, repayment behaviour and sometimes even the stability of a person’s job. Someone with a credit score above 750 is generally seen as less risky, which may lead to better rate quotes.
But the surprise comes when borrowers factor in the full cost. A loan that appears low-cost upfront may become expensive once processing fees, prepayment penalties and foreclosure charges enter the picture. Some lenders also add GST on fees, which further inflates the final outgo.
The processing fee alone can range anywhere between 0.5% and 5% of the total loan amount. Prepaying early could also trigger an additional 2–5% penalty in some institutions. The real shock usually comes when an EMI bounces. Late fees, legal steps and recovery actions can pile up quickly, apart from the damage to the credit score.
Borrowers who miss payments often learn that penalties are not just short-term expenses; they can affect future loan approvals and interest rates.
A personal loan may not demand collateral, but lenders still examine the borrower closely. A strong credit score, a comfortable income and a healthy debt-to-income ratio — usually 35% or lower — often strengthen approval chances.
Even the nature of employment plays a role. People with a stable job history, steady monthly income or long-term positions often receive more favourable terms. Those with frequent job changes or irregular earnings may face tougher scrutiny.
Choosing the loan size and tenure is where many borrowers get stuck. Longer tenures lower the monthly EMI but raise the total interest paid over the years. Shorter tenures do the opposite — higher monthly repayment but a lower overall cost.
Lenders may also adjust rates based on the size of the loan. Bigger loans could attract a rate spread, depending on their internal risk models.
Many borrowers try to close loans early, but prepayment rules vary widely. Some lenders allow part-prepayment without much cost, while others impose strict charges. Borrowers with existing accounts — especially salary accounts — at the same bank often negotiate better terms.
Foreclosure terms also matter. Some banks allow full closure at minimal cost, while others enforce stiff penalties. Anyone planning to repay early needs to understand these conditions clearly before signing the papers.
Personal loans may look attractive because of their speed and simplicity, but they come with their own risks. High interest rates, hidden charges, the risk of overborrowing and the long-term impact on credit health are all possibilities borrowers could face if they rush into a decision.
Financial planners often recommend reviewing loan structures carefully and seeking professional advice before committing. The idea is not to avoid personal loans altogether, but to understand the cost, the terms and the borrower’s own repayment capacity.
Comparing personal loan offers is no longer about spotting a low interest rate. The smarter move is to look at the entire structure — fees, penalties, eligibility rules, prepayment conditions and the borrower’s own financial profile.
If these pieces fall into place, lenders might continue to see strong demand in the personal loan segment. If not, many borrowers may have a tough time navigating what initially appears to be a simple borrowing choice
{Disclaimer: The information provided in this article is for educational purposes only and does not constitute financial advice. Investments in mutual funds are subject to market risks, and past performance is not necessarily indicative of future results. Before making any investment decisions, it is important to consult with a qualified financial advisor or conduct thorough research based on your individual financial situation and risk tolerance.}