Applying for a personal loan? Here are essential dos and don’ts you must keep in mind

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Also Read: Effective steps to repay your personal loanYou may be eligible for 1.5-2 times your annual salary but be wise and cautious with personal loans. Do remember that they are unsecured loans that carry a higher interest rate than home and vehicle loans.

Taking a loan amount that is more than your annual salary will be a drag on your finances. The bank typically decides on disbursing such loans to customers based on their earnings and spending capacity.In case of salaried individuals, the payslip of the latest three months is taken as income proof for disbursing loans.

For the self-employed, the amount of money they spent on debit and credit cards over a timeframe of six months to a year is used as the yardstick. Interestingly, a fat paycheck alone doesn’t determine your eligibility for personal loans.

Also Read: Personal loans for veterans: How are they different from regular ones? MintGenie explainsLeading banks have a strict policy of declining personal loans to those who are not employed in leading companies.

Some banks offer personal loans only for employees of companies that are listed on the bourses.Here is a primer on the do’s and don’ts one needs to follow while availing personal loans.Though there is no one-size-fits-all solution, one should ensure that the EMI (equated monthly instalments) on personal loans does not exceed 20% of monthly income, say financial advisors. If a lot of money goes into paying EMI for personal loans, enough funds will not be available to meet regular costs such as education and for other monthly recurring expenditure.“The size of the personal loan should ideally be small.