You should opt for a personal loan amount that you can repay easily factoring in your current liabilities and cash flows.

Though personal loans are available easily these days, it is essential to borrow them with prudence for a healthy financial life. Borrowers are often confused about the personal loan amount that they should take, given the ease with which this loan can be availed.

While a high loan amount puts the burden of increased EMIs, a low amount may not serve the required purpose. This article highlights the essential factors that should dictate the personal loan amount to be taken.

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An amount that can be easily repaid

Whether you are availing a personal loan for a wedding or higher education or debt consolidation, it’s essential to avail an amount that you can repay easily. Today, financial institutions disburse personal loan of a high amount at a competitive rate of interest. However, biting more than what you can chew can spell trouble in the long run.

Suppose you are eligible for a loan of Rs.50 lakh, make sure you opt for the maximum amount only if you have enough to pay it back on time. Your CIBIL score takes a hit in case of a default. You can easily calculate the EMIs to be paid every month with the help of this personal loan EMI calculator.

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Consider current liabilities

Before settling on the final loan amount, take into consideration your current liabilities. If you are already serving EMIs on other loans such as a home loan or car loan, make sure you borrow an amount that keeps the combined EMIs of all the loans within 25-30% of your monthly income.

So, for instance, if your monthly income is Rs.50,000 the combined EMIs shouldn’t be more than Rs.15,000 in a month. Note that being an unsecured mode of finance, interest rates on personal loans are slightly higher compared to secured loans. Thus, the greater the amount, the higher are the EMIs.

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Analyze cash flows

It’s imperative for you to analyze your cash flows before deciding the loan amount you wish to borrow. Your cash flow should factor in windfalls you expect to receive as bonuses and maturity of your investments, such as fixed deposits and insurance policies, within the loan tenor.

These surpluses help in part payment of a loan that can ease the repayment burden. A holistic view of your cash flow is essential before settling on the final loan amount since it helps you chalk out a repayment strategy.

With the evolution of alternate lenders including non-banking finance companies (NBFCs), it’s has become extremely easy to avail a personal loan. By submitting the essential personal loan documents along with the application form, you can avail the required funds. Though the borrowing exercise has become seamless, the core tenets remain the same.