Know these 5 smart tips before taking a salary-based personal loan; otherwise, the EMI could become a headache..

In today's digital era, obtaining a personal loan has become significantly easier than before. Salary-based personal loans, in particular, can be approved for salaried individuals within just a few minutes.

Banks and fintech companies now offer loans based on your salary, job stability, credit score, and banking behavior. This has reduced paperwork and accelerated the disbursement of funds.

However, easy access to loans does not always equate to a sound financial decision. Many people borrow more than they need and subsequently struggle under the pressure of EMI repayments.

What is a Salary-Based Personal Loan?
A salary-based personal loan is one where your eligibility is primarily determined by your regular salary. Lenders typically assess the following factors:

Monthly salary
Job stability
Credit score
Existing loans and EMIs
Bank account cash flow
The interest rate and loan amount are determined based on these factors.

Why is the popularity of Salary-Based Loans rising?
There are several reasons for this:

Minimal documentation
Quick approval
Unsecured loans (no collateral required)
Flexible repayment options
Availability of funds during emergencies
However, there are significant risks involved.

Easy availability can often tempt people to borrow more than necessary. This is why experts advise thorough planning before taking out a loan.

5 Major Drawbacks of Salary-Based Personal Loans
1. Risk of high interest rates

Personal loans are generally more expensive than home loans or auto loans. Processing fees, GST, and other charges can increase the total cost.

2. Borrowing in excess of needs

When loans are easily accessible, many people borrow more than they actually require. Consequently, the resulting EMIs can become a financial burden.

3. Costly long-term commitment

Opting for a longer tenure to secure lower EMIs can significantly increase the total interest payable over time.

4. Difficulty in obtaining future loans

Failure to repay EMIs on time can make it difficult to secure the following in the future:

Home loans
Car loans
Credit cards

5. Impact on Credit Score

Missing even a single EMI payment can negatively affect your CIBIL score.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.