6 Key Terms to Know Before Applying for a Personal Loan
Before taking a personal loan, learn 6 simple terms Principal, Interest, EMI, Tenure, Processing Fee, and Credit Score. These can save you money and help you choose smartly.
Taking a personal loan for marriage, education, emergency, or travel can be helpful but only if you understand the terms clearly. Many people rush and later regret it because of hidden costs. Here are 6 important words you must know before taking a personal loan in India.
Principal Amount – This is the actual loan you borrow. For example, if you take ?1,00,000, then ?1,00,000 is your principal. You must repay this full amount plus extra charges like interest and fees.
Interest Rate – This is the extra money you pay for borrowing. Example: If the loan is ?1,00,000 with 10% interest per year, you pay ?10,000 extra. Lower interest = cheaper loan.
EMI (Equated Monthly Installment) – The fixed amount you repay every month. EMI includes part of the loan (principal) and part interest. Example: For ?1,00,000 at 10% for 1 year, EMI is around ?8,792 per month.
Tenure – The time to repay the loan. Shorter tenure = higher EMI but less total interest. Longer tenure = smaller EMI but more interest overall.
Processing Fee – A one-time fee, usually 1–3%. For a ?1,00,000 loan with 2% fee, you pay ?2,000. Sometimes this is deducted from the loan.
Credit Score – Your financial report card (300–900). A score above 750 makes loans easier and cheaper. Lower scores may mean rejection or higher charges.
Loans can help only when you understand them well. Compare banks, read terms, and choose wisely.
