Before You Borrow: Traffic-Light Check

Ten quick checks before you take any loan. Get a clear Green, Think twice or Stop, with the reasons and the real cost.

1. The cost of this loan

example rate: use the rate in your offer
Processing fee, insurance add-ons etc. Use 0 if none.
Monthly EMI
–
Total interest
–
Total cost (interest + fees)
–
You pay back in all
–

2. Can you afford the EMI?

All loans, card EMIs, BNPL instalments

Rule of thumb used by many planners: keep all EMIs under about 30% of take-home pay; above 50% leaves very little room for life’s surprises.

3. Quick honest questions

Your traffic light

Answer the questions

    ⏳
    Try the 24-hour cooling-off rule. Whatever your light, give yourself one full day before you sign anything. A genuine lender will still be there tomorrow. In those 24 hours:
    • Compare the total cost (not just the EMI) from at least two regulated lenders.
    • Read the loan agreement and every charge in writing.
    • Ask: could I save for this, borrow less, or choose a shorter tenure?
    • Talk it through with someone you trust.

    🚩 Red flags: illegal lending apps and loan scams

    Fee before the loanAsks for a “processing” or “insurance” fee before giving you any money.
    Wants your phone dataAsks for access to your contacts, photos or gallery.
    Not registeredYou can’t find the lender on your official financial regulator’s website.
    Rushes you“Approved in 5 minutes, offer ends today,” repeated calls or messages.
    Unclear costsNo written agreement, no clear interest rate, or a much smaller amount credited than promised.
    Threats or shamingThreatens to call your contacts, post your photos or harass your family.

    Before you borrow, verify the lender on your country’s official banking or financial regulator website (in India, the Reserve Bank of India’s official website). Only download apps from official app stores, and never share OTPs, PINs or passwords.

    If you’re being harassed, don’t pay more under pressure. Keep screenshots, report it to the police and your national cybercrime reporting portal or helpline (in India, helpline 1930), and tell someone you trust. You are not alone.

    Helpful next steps

    Compare tenures with the EMI Calculator, and build a cushion so you need to borrow less often with the Emergency Fund Calculator.

    For education only. Not financial advice. Figures are estimates based on your assumptions.

    How to use the Loan Check

    1. Enter the loan amount, yearly interest rate, repayment period and any upfront fees from your offer.
    2. See the EMI, total interest, total cost and what you pay back for every ₹1 borrowed.
    3. Enter your monthly take-home pay and the EMIs you already pay. The tool shows what share of your pay would go to EMIs.
    4. Answer nine honest questions about need, timing, costs, your emergency fund and the lender.
    5. Read your traffic light: Green, Think twice, or Stop for now, with the reasons listed.

    Worked example

    Neha wants ₹50,000 at an example rate of 18% a year for 12 months. Upfront fees are ₹1,000.

    Her EMI is about ₹4,584. Interest comes to about ₹5,008. With fees, the loan costs about ₹6,008 in all.

    She pays back about ₹56,008, so every ₹1 borrowed costs about ₹1.12.

    She earns ₹40,000 a month and already pays ₹5,000 in EMIs. With this loan, ₹9,584 would go to EMIs. That is 24% of her pay, a comfortable range by the 30% rule of thumb.

    But if the loan is for a trip she could save for, her light turns red. Saving first could avoid the interest completely.

    Questions to ask before any loan

    Give yourself 24 hours before signing. A genuine lender will still be there tomorrow.

    • Is this a real need, or could it wait while I save?
    • What is the total cost in writing: interest, fees, late fees and prepayment rules?
    • Will all my EMIs stay under about 30% of my take-home pay?
    • Do I have an emergency fund if my income stops for a while?
    • Is the lender regulated? Check it on the Reserve Bank of India’s official website.
    • Can I borrow less, or pick a shorter period? Compare options with the EMI Calculator.

    Warning signs of illegal lending apps

    Never share OTPs, PINs or passwords. If you are being harassed, do not pay more under pressure. Keep screenshots, report it to the police and the national cybercrime helpline 1930, and tell someone you trust.

    • Asks for a fee before giving you any money.
    • Wants access to your contacts, photos or gallery.
    • Cannot be found on the Reserve Bank of India’s official website.
    • Rushes you with “offer ends today” or repeated calls.
    • No written agreement, no clear rate, or less money credited than promised.
    • Threatens to call your contacts or shame you.

    Questions people ask

    Does a Green light mean I should take the loan?

    No. It means your answers look sensible. Still read every term and borrow only what you need.

    Why look at total cost and not just the EMI?

    A longer period lowers the EMI but raises the interest. Over 36 months, Neha’s interest would be about ₹15,074 instead of ₹5,008.

    Are my answers saved or sent anywhere?

    No. Everything is worked out in your browser and nothing is uploaded.

    This content is for general education only and is not financial, investment, tax or legal advice. Please consult a qualified professional before making financial decisions.