Personal loan is an unsecured credit option with no end use restrictions on its proceeds. It usually has quicker disbursal, making it an ideal choice for consumers having urgent financial requirements. Personal loans are easy to apply for; however, with numerous options available, picking the best-suited offer can often be challenging for many. Keeping this mind, here are a few points that prospective borrowers should consider when comparing various personal loan offers:
Many lenders offer preferential interest rates to their existing customers. Many banks and NBFCs also offer pre-approved personal loans to their existing customers having good credit profiles. Such loans are usually offered at lower interest rates and have instant or near instant disbursal. Hence, prospective borrowers should first approach those banks and/or NBFCs with which they maintain a deposit, loan or credit card accounts. The interest rates and other loan features offered by such personal loan lenders can be used as benchmark against which the interest rates offered by other banks/NBFCs can be compared.
The interest rates offered on personal loans can vary widely across lenders based on the applicants’ credit scores, employer profiles, occupations and income profile. Moreover, the varying credit risk assessment policies used by lenders may also lead to varied outcome for the same applicant in terms of his loan approval chances and interest rates offered. Hence, personal loan applicants should compare the personal loan offers from as many lenders as possible before making the final loan selection. The best way to do so is to visit online financial markets where the applicants can compare personal loan offers from multiple lenders based on their credit score and other facets of their credit profile.
Choosing longer loan tenure decreases the EMI amount but increases the overall interest cost of the loan. Shorter tenures, on the other hand, lead to higher EMIs but decrease in the overall interest cost. Hence, applicants should choose loan tenure based on their loan repayment capacity. Banks and NBFCs prefer lending personal loans to applicants whose monthly loan repayment obligations, including EMI of the proposed personal loan, are within 55-60% of their net monthly income. Applicants exceeding this limit can choose longer tenures or/and lower loan amounts to reduce their EMIs. However, to accommodate higher EMI payments, prospective borrowers should avoid compromising on their existing investments or monthly contributions meant for meeting their crucial financial goals. To get an estimate of their personal loan EMIs, prospective loan applicants can use online Personal Loan EMI Calculators.
These calculators will also help them decide optimum tenure based on their repayment capacity.
Besides interest rates, there are various other fees and charges such as processing fee, foreclosure charges, documentation fee, etc., which would influence the overall cost of availing a personal loan. Among these additional costs, processing fee proves to be a major expense as it usually is 0.5%-4% of the loan amount. However, some lenders may put a cap on the processing fee amount, irrespective of the personal loan amount while others may waive off processing fees during their special festive campaigns. Therefore, applicants should use the online APR calculators to calculate the overall cost of borrowing and then, choose the personal loan offer incurring lowest borrowing cost.
As per RBI’s regulations, banks cannot levy part prepayment/foreclosure charges on floating rate personal loans. However, on fixed rate personal loans, there is no such restriction. Therefore, your lenders are free to charge a fee on the prepayment or foreclosure on your fixed rate personal loan. Many lenders also have terms and conditions attached with the loan prepayment or foreclosure. Some banks and NBFCs do not allow prepayment or foreclosure of a personal loan account until a pre-determined number of EMIs have been repaid. Thus, prospective personal loan applicants wishing to make prepayments in future should also look into the prepayment/foreclosure related charges and restrictions before finalising on a personal loan offer.
It usually takes 4 to 7 days for a lender to disburse a personal loan. However, the adoption of end-to-end digital onboarding process by many lenders has enabled them to offer personal loans with quicker disbursal, with many lenders claiming to disburse personal loan within few hours from making loan application. Therefore, applicants having urgent fund requirements should check and compare the turnaround time for loan approval and disbursal before making the final selection.