Borrowing in India: An Insider’s Playbook

The cheapest loan is the one you repay quickly without disrupting cashflow. You don’t need a dozen offers—you need the right product, priced correctly, with a repayment plan that you can execute.

Before You Sign: 5 Non‑Negotiables

1. Affordability (FOIR): Keep total EMIs under 35–45% of monthly net income for home loans. For personal/vehicle loans, stay tighter if your income is volatile.
2. Rate type: Prefer floating, repo‑linked rates (RLLR/EBLR) over old MCLR or opaque “fixed” rates that reset. Know your benchmark and your spread.
3. Tenure strategy: Pick a comfortable EMI with a longer tenure, then prepay small amounts regularly. Floating‑rate home loans for individuals have no prepayment penalty.
4. Total cost: Include processing fees, legal/valuation, CERSAI, documentation, and any state‑specific stamp duty on loan documents—not just the interest rate.
5. Insurance bundling: Credit‑life is optional. Don’t let it get bundled into the loan without an apples‑to‑apples quote vs a standalone term policy.

How Lenders Price Your Loan (and How To Lower It)

• Rate = Benchmark (Repo/RLLR) + Spread. Repo moves; your spread usually doesn’t unless you ask.
• “Conversion/Rate reset”: Ask your bank to reduce the spread to current carded rates by paying a one‑time conversion fee (often 0.25–0.5% of outstanding, capped). Compare this with a balance transfer (BT) to another bank.
• What moves the spread: Bureau score, LTV (for secured loans), income stability, employer category, and existing relationship. Clean up these inputs before applying.

Pro move: Calendar a “rate health check” every April. Ask for your prevailing benchmark, spread, and offered reset rate—then negotiate or evaluate BT.

Home Loans: Tactics That Save Real Money

• Tenure vs EMI: Longer tenure keeps EMI sane; your real weapon is part‑prepayment.
  • Example: ₹50 lakhs at 9% for 20 years is ~₹44,986 EMI. Add ₹5,000/month as part‑prepayment and you can cut 4–6 years off and save ₹10–15 lakhs in interest, directionally.
• Prepayment cadence: Small, regular prepayments early in the loan beat occasional large prepayments later due to front‑loaded interest.
• Balance transfer: Worth considering if you get ≥50–75 bps lower post‑fees and you keep the remaining tenure (don’t restart to 20/30 years unless cashflow is stressed).
• Top‑up loan: For renovation/education, top‑ups against a home loan are often cheaper than personal loans. Keep the tenure aligned with the use‑case lifespan.

Documentation (salaried): 3–6 months bank statements, 3 months salary slips, Form 16/ITR, KYC, employment proof.

Documentation (self‑employed): 12 months bank statements, last 2–3 years ITRs, GST returns, audited financials, KYC.

Property papers: Title chain, sale agreement, sanctioned plan, OC/CC as applicable, encumbrance certificate, property tax receipts.

Personal Loans: Use Sparingly, Structure Smartly

• Tenure 1–5 years; EMIs should keep your FOIR healthy. Avoid stretching to 6–7 years just for a lower EMI; the interest cost balloons.
• Preclosure/part‑prepayment usually attracts 2–5% charges—read the schedule of charges.
• If you own a house, compare a home‑loan top‑up vs personal loan; the former is secured and typically cheaper.
• Avoid multi‑app spam: Too many hard enquiries in a short window dents your bureau score and can worsen your final offer.

Car Loans: Don’t Fall for “Flat Rate” Tricks

• Compare effective reducing rate (EIR), not just the quoted rate. Flat rates understate cost.
• Typical LTV is 80–90% of on‑road price; a token down‑payment often means higher add‑on costs and insurance bundling.
• Watch hypothecation, processing fees, and foreclosure charges.

Credit Score Levers (That Actually Move the Needle)

• Keep utilisation under ~30% of total credit limits; ask for a higher limit before a big purchase.
• Zero DPD: One 30‑day miss can dent your score for months. Set auto‑pay for all loans/cards.
• Don’t close your oldest card—it anchors your credit history length.
• Space out new credit; multiple hard pulls in 30–60 days can hurt pricing.
• Dispute bureau errors early; lenders rely on the bureau record, not your spreadsheet.

EMI Math (Know What You’re Paying For)

The EMI formula is:

EMI = P × r × (1 + r)^n / ((1 + r)^n - 1)

Where:

• P = Principal amount
• r = Monthly interest rate
• n = Number of months

Practical read: Early EMIs are mostly interest. This is why prepaying in year 1–5 has an outsized impact.

Hidden Charges Checklist

• Processing/administration fees and GST
• Legal and valuation (property loans)
• CERSAI/registration and documentation charges
• Stamp duty on loan documents (state‑dependent)
• Foreclosure/part‑prepayment charges (usually nil for floating‑rate home loans to individuals; common for fixed/PL/car loans)
• Insurance add‑ons—decline unless you truly need them

Jargon Decoder (Quick Reference)

• FOIR: % of net income going to EMIs
• LTV: Loan amount ÷ property/asset value
• EIR: Effective interest rate on reducing balance
• DPD: Days past due; keep at 0
• RLLR/EBLR/MCLR: Benchmarks your floating rate tracks

Tools and Next Steps

• EMI Calculator: Model EMI, tenure, and prepayment impact
• Home Buying Journey: End‑to‑end home purchase planning
• Income Tax Calculator: Factor Section 24(b) and 80C benefits

Call your bank today: Ask for your current benchmark, spread, and a conversion quote. If the math doesn’t work, price a clean balance transfer keeping the same remaining tenure.