Taking a loan feels like a relief until hidden costs start piling up. Rahul, a salaried professional, thought he had made a smart choice by taking a 4 lakh personal loan for a medical emergency. He didn’t check the terms properly.
The high processing fee, long tenure, and extra penalties cost him over ₹1.5 lakh more than expected.
Now, let’s break this down. Suppose you take a 4 lakh personal loan at an 11% annual interest rate for five years. Your EMI would be around ₹8,700. Over five years, you pay ₹5.22 lakh in total.
But if the interest rate is 14%, the total repayment jumps to ₹5.58 lakh, ₹36,000 more! Small mistakes can drain your hard-earned money.
According to a report by The Indian Express, non-performing assets (NPAs) in the personal loans segment increased by 51%, from ₹7,422 crore in March 2023 to ₹11,210 crore in September 2024.
Keep reading to find out more about seven costly loan mistakes.
Not Comparing Loan Offers
Banks and NBFCs offer different interest rates, processing fees, and terms. Choosing the first available offer can be costly.
Example: Bank A offers a 4 lakh personal loan at 10.5% for five years, while Bank B charges 12.5%. At Bank A, the total interest paid is ₹1.14 lakh. At Bank B, it’s ₹1.42 lakh. That’s an extra ₹28,000, just for not comparing!
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Use online loan comparison tools. Always check APR (Annual Percentage Rate), not just interest rates. APR includes all hidden fees.
Ignoring Loan Terms and Hidden Charges
Many loans come with processing fees, late payment penalties, and foreclosure charges. These hidden costs add up fast.
Example: A lender may charge a 2% processing fee on a 4 lakh personal loan—that’s ₹8,000 upfront! Add late fees of ₹500 per missed EMI, and penalties quickly add up.
Always read the fine print. Ask your lender about all charges before signing.
Borrowing More Than You Need
It’s tempting to take a higher loan, but can you afford the EMI?
Example: You need ₹3 lakh but take a 4 lakh personal loan because the bank offers it. At 12% for five years, you pay ₹9,000 EMI instead of ₹6,750 for ₹3 lakh. That’s ₹2,250 extra every month and ₹1.35 lakh more over five years!
Assess your needs before borrowing. Take only what you can repay comfortably.
Choosing a Longer Tenure Without Checking Total Cost
Longer tenures reduce EMI but increase total interest paid.
| Loan Amount | Interest Rate | Tenure | EMI | Total Repayment |
| ₹4 lakh | 11% | 3 years | ₹13,000 | ₹4.68 lakh |
| ₹4 lakh | 11% | 5 years | ₹8,700 | ₹5.22 lakh |
| ₹4 lakh | 11% | 7 years | ₹6,900 | ₹5.80 lakh |
A longer tenure can cost ₹1.12 lakh extra! If you can afford a higher EMI, choose a shorter tenure.
Applying Without Checking Your Credit Score
Your credit score affects loan approval and interest rates. A low score (below 700) means higher interest rates.
Example: A borrower with a 750 score gets a 4 lakh personal loan at 10%, while a 650 score borrower gets 14%. The difference? ₹36,000 more interest paid!
Check your score before applying. Improve it by clearing debts and paying bills on time.
Final Thoughts
A little awareness can save you lakhs in the long run. Never rush into a loan decision. Compare lenders, check your credit score, and understand hidden charges. A 4 lakh personal loan can be a smart financial move if managed correctly.
Before signing the dotted line, ask yourself, am I making a financially wise choice?
FAQs
- What’s the best tenure for a 4 lakh personal loan?
A shorter tenure (3-5 years) reduces total interest, but choose based on EMI affordability. - How does a low credit score affect my personal loan?
A lower credit score means higher interest rates, leading to a higher total repayment. - Can I prepay my loan anytime?
Yes, but some banks charge a foreclosure fee. Check terms before prepaying. - How do I compare personal loan offers?
Use loan comparison tools, check APR, and processing fees, and read reviews before choosing a lender.
Also Read: Pakistan government falls short of loan target in July
