Check on these 6 points before availing personal loans

Published July 29, 2023

Personal loan is a preferred choice of many consumers to meet their varied personal financial requirements. Moreover, it requires minimal documentation, no collateral and has quicker loan disbursals, making it ideal even for those having urgent fund requirements. With a wide range of lenders offering personal loans at widely varying interest rates based on their applicants’ job profiles, credit scores, employer’s profile, monthly incomes, etc., choosing the right personal loan offer can be difficult for many. To help you with the same, here are some points on choosing the right personal loan:

Check offers from lenders with whom you have bank-customer relationship

Many lenders offer preferential interest rates to their existing customers. Therefore, when starting your search for personal loans, first check with the lenders with whom you maintain deposit, loan or credit card accounts. Moreover, if your lender offers pre-approved loans to its existing customers then approaching them first would also help you know if you qualify for any such offer. Pre-approved offers are usually offered to existing customers having good credit profile. They are usually offered at lower interest rates and are disbursed instantly or within a few hours of making the loan application. This makes them an ideal choice for those needing funds urgently.

Compare personal loan offers by other banks and NBFCs

After availing quotes from your existing lenders, check personal loan offers by other banks and NBFCs. You can use the interest rates and other loan features quoted by your existing personal loan lenders as a benchmark to compare the interest rates offered by other banks/NBFCs.

Based on your credit score, employment profile, occupation, income profile, etc., the interest rate offered on your personal loan can vary widely across lenders. Lenders’ varying credit risk assessment policies can also give varied results for the same credit profile in terms of his loan approval chances and final rate of interest. Therefore, to avail the best possible deal on personal loans, compare offers from as many lenders as possible. Visit the online financial marketplaces to compare offers by multiple personal loan lenders based on your credit profile.

Select tenure basis your loan repayment capacity

The tenure you select for your personal loan will affect its interest cost as well as the EMI amount. Longer tenure leads to reduction in EMIs but increase in the overall interest cost. Shorter tenure, however, leads to increase in loan EMIs and reduction in the overall interest cost. Therefore, when availing a personal loan, choose tenure basis your loan repayment capacity. Lenders prefer sanctioning personal loans to those whose total EMIs, of both existing loans and proposed personal loan, are below 55-60% of their net monthly salary. Those exceeding this limit might face loan rejection due to insufficient loan repayment capacity. To avoid this, select longer tenure to reduce your proposed loan EMIs. Use online personal loan EMI calculator to determine the EMI of your proposed loan and the optimum tenure based on your loan repayment capacity.

Compare processing fees and other charges

Apart from the rate of interest, other charges that make up the total cost of your personal loan include processing fee, documentation fee, foreclosure, etc. Among these additional fees and charges, processing fee constitutes a major portion as it usually ranges from 0.5% to 4% of the loan amount. Some lenders may limit these charges, regardless of the loan amount while others may waive them off during their special offer campaigns. Thus, always use online APR calculator to determine the total cost of borrowing a personal loan. Several lenders have the online APR calculators on their websites, among other online personal loan calculators like EMI calculator, eligibility calculator, prepayment calculator, etc.

Check prepayment charges and conditions

As per the RBI’s regulations, banks cannot impose part-prepayment or foreclosure charges on floating rate personal loans. However, in case of fixed rate personal loans, lenders are free will to levy these charges. Many lenders also bar their personal loans borrowers to prepay/foreclose their personal loans until a pre-determined number of EMIs have been paid. Hence, you should always look into these charges and its conditions before availing a personal loan, especially when you have plans to prepay or foreclosure your loan in future.

Check loan disbursal time

A lender usually takes 4 to 7 days to disburse a personal loan. However, with many lenders adopting the end-to-end digital onboarding process, you can now get personal loans in fewer days, with many lenders claiming to disburse the amount within just a few hours from making a loan application. So, if you require funds urgently, make sure to check and compare the turnaround time for loan approval and disbursal before making the final selection.

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