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FinCalc India

Guide · Updated 8 Sept 2026

Borrowing Well: A Guide to Loans in India

Debt is a tool. Used for an appreciating or productive asset with an affordable EMI, it can help. Used for consumption at a high rate, it drains wealth. This guide covers how loans are priced and how to compare them.

Secured vs unsecured

  • Secured (home, car, gold, loan against property/securities): backed by an asset, so lower rates and larger amounts.
  • Unsecured (personal loan, credit card, consumer durable): no collateral, so higher rates and smaller amounts.

What determines your rate

  • Credit score and history — a score above 750 usually gets the best rates.
  • Income stability, employer category and existing EMIs (FOIR).
  • Loan-to-value for secured loans; tenure; and the lender's cost of funds.
  • Whether the rate is fixed or floating (linked to an external benchmark like the repo rate).

Fees and fine print

  • Processing fee (0.5–3%), documentation, and GST on charges.
  • Prepayment / foreclosure charges — often nil on floating-rate home loans to individuals, but common on fixed-rate and personal loans.
  • Penal interest on late payment, and the reset frequency on floating-rate loans.

Comparing offers

Do not compare EMIs or headline rates alone. Compute the total cost — total repayment plus all one-time fees — over the same tenure. A lower rate with a high fee can lose to a slightly higher rate with no fee on a short loan.

Before you sign

  • Check that the EMI fits with all your obligations under ~40% of take-home pay.
  • Keep an emergency fund so you never miss an EMI.
  • Read the reset and prepayment clauses.
  • Prefer the shortest tenure you can comfortably afford.

Frequently asked questions

Is a floating or fixed rate better?

Floating rates move with the benchmark and are usually lower to start, with no prepayment penalty on individual home loans. Fixed rates give certainty but tend to be higher and may carry foreclosure charges.

How is loan eligibility decided?

Mainly by your income, existing EMIs (FOIR), credit score and, for secured loans, the value of the collateral. Each lender applies its own policy on top of these.

Does checking my own credit score hurt it?

No. Checking your own score is a 'soft' enquiry and has no impact. Multiple lender-initiated 'hard' enquiries in a short span can lower it slightly.

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