That ‘easy’ personal loan may cost you more than you think. Here’s how to avoid mistakes in 2026
Most borrowers start and end their comparison with one number: the EMI. A lower monthly instalment feels like a win, especially when budgets already feel tight.
- Dec 25, 2025,
- Updated Dec 25, 2025 6:54 PM IST
Personal loans have never been easier to access. A notification pops up on a banking app, a “pre-approved” tag offers instant reassurance, a few taps later documents are uploaded — and the money lands in the account. The process feels almost casual, even harmless. But that very ease is where many borrowers get it wrong.
Financial experts warn that personal loans are among the costliest forms of credit, and mistakes made at the application stage often reveal themselves months later — through bloated interest payments, stretched tenures and rising monthly stress. The problem is rarely the act of borrowing itself. It is borrowing without fully understanding the details.
EMI illusion
Most borrowers start and end their comparison with one number: the EMI. A lower monthly instalment feels like a win, especially when budgets already feel tight. But what looks affordable on the surface can hide a longer repayment period, quietly pushing up the total interest paid.
A loan with a slightly higher EMI but a shorter tenure often costs less overall. The difference may seem marginal month to month, but over three or five years, it can add up to thousands of rupees. Experts say borrowers should always check the total repayment amount — not just what leaves the bank account each month.
Comfort of familiarity
Another common misstep is sticking with the first lender that makes an offer — usually one’s existing bank. Familiarity breeds convenience, but it can also be expensive. Interest rates and fees for personal loans vary widely across banks and NBFCs, even for borrowers with similar credit profiles.
A brief comparison across two or three credible lenders can reveal meaningful differences. Even a one-percentage-point gap in interest can significantly affect long-term costs, especially for larger loans.
The ‘small’ charges
Processing fees, documentation charges, insurance add-ons — these often get ignored because they appear to be one-time costs. In reality, they alter the economics of the loan immediately. A processing fee of two percent on a ₹3 lakh loan means ₹6,000 gone upfront, plus GST. In some cases, the fee is deducted from the disbursed amount, leaving borrowers short of the money they expected.
Many realise this only when funds fall short of their needs. Reading the fee section, experts note, is not clerical detail — it is financial due diligence.
Stretching tenure for comfort
Longer tenures offer psychological relief: lower EMIs and less immediate pressure. But they also extend the loan into future life goals — from education expenses to housing plans — and keep interest ticking for longer than necessary.
If a borrower can manage a slightly higher EMI, a shorter tenure reduces interest costs and frees up income sooner. Loans become burdensome not because they exist, but because they linger longer than needed.
Spending before repayment
Perhaps the most damaging mistake is treating loan disbursal as the finish line rather than the starting point. Once money arrives, spending often expands, with repayment pushed to the background. But EMIs are fixed obligations that do not pause for festivals, travel or emergencies.
Experts recommend deciding the repayment strategy before spending even a rupee — setting up auto-debit, keeping a buffer for initial EMIs and planning prepayments if income improves.
Personal loans can be useful — for emergencies, cash-flow protection or urgent needs. The risk arises when speed replaces clarity. A few extra minutes spent checking interest rates, fees, tenure and total repayment can prevent months or even years of financial strain.
Borrowing, financial planners stress, is not about fear. It is about awareness. When taken consciously, a personal loan remains a helpful tool. When taken casually, it can quietly turn into a long-term weight.
Personal loans have never been easier to access. A notification pops up on a banking app, a “pre-approved” tag offers instant reassurance, a few taps later documents are uploaded — and the money lands in the account. The process feels almost casual, even harmless. But that very ease is where many borrowers get it wrong.
Financial experts warn that personal loans are among the costliest forms of credit, and mistakes made at the application stage often reveal themselves months later — through bloated interest payments, stretched tenures and rising monthly stress. The problem is rarely the act of borrowing itself. It is borrowing without fully understanding the details.
EMI illusion
Most borrowers start and end their comparison with one number: the EMI. A lower monthly instalment feels like a win, especially when budgets already feel tight. But what looks affordable on the surface can hide a longer repayment period, quietly pushing up the total interest paid.
A loan with a slightly higher EMI but a shorter tenure often costs less overall. The difference may seem marginal month to month, but over three or five years, it can add up to thousands of rupees. Experts say borrowers should always check the total repayment amount — not just what leaves the bank account each month.
Comfort of familiarity
Another common misstep is sticking with the first lender that makes an offer — usually one’s existing bank. Familiarity breeds convenience, but it can also be expensive. Interest rates and fees for personal loans vary widely across banks and NBFCs, even for borrowers with similar credit profiles.
A brief comparison across two or three credible lenders can reveal meaningful differences. Even a one-percentage-point gap in interest can significantly affect long-term costs, especially for larger loans.
The ‘small’ charges
Processing fees, documentation charges, insurance add-ons — these often get ignored because they appear to be one-time costs. In reality, they alter the economics of the loan immediately. A processing fee of two percent on a ₹3 lakh loan means ₹6,000 gone upfront, plus GST. In some cases, the fee is deducted from the disbursed amount, leaving borrowers short of the money they expected.
Many realise this only when funds fall short of their needs. Reading the fee section, experts note, is not clerical detail — it is financial due diligence.
Stretching tenure for comfort
Longer tenures offer psychological relief: lower EMIs and less immediate pressure. But they also extend the loan into future life goals — from education expenses to housing plans — and keep interest ticking for longer than necessary.
If a borrower can manage a slightly higher EMI, a shorter tenure reduces interest costs and frees up income sooner. Loans become burdensome not because they exist, but because they linger longer than needed.
Spending before repayment
Perhaps the most damaging mistake is treating loan disbursal as the finish line rather than the starting point. Once money arrives, spending often expands, with repayment pushed to the background. But EMIs are fixed obligations that do not pause for festivals, travel or emergencies.
Experts recommend deciding the repayment strategy before spending even a rupee — setting up auto-debit, keeping a buffer for initial EMIs and planning prepayments if income improves.
Personal loans can be useful — for emergencies, cash-flow protection or urgent needs. The risk arises when speed replaces clarity. A few extra minutes spent checking interest rates, fees, tenure and total repayment can prevent months or even years of financial strain.
Borrowing, financial planners stress, is not about fear. It is about awareness. When taken consciously, a personal loan remains a helpful tool. When taken casually, it can quietly turn into a long-term weight.