Personal loans are one of the most popular unsecured borrowing tools available on the market. They are easy to use because you don’t need to pledge your assets as collateral or collateral. Unlike a home loan or auto loan which are specified products, a personal loan can be used for any purpose. The need to avail your first personal loan can arise at any stage of your life. You might need a personal loan for home renovations or for sudden medical expenses. It can be your best financial friend at any time of a financial crisis.
If you’re in the market for your first personal loan, there are a few important things to keep in mind. This article addresses these crucial points to help you get the best deal. Looked:
Check if you are eligible
Eligibility standards for each lender vary and are different for a salaried or self-employed person. Before applying for a loan, you must check whether you meet the eligibility criteria established by the lenders. Usually, people between the ages of 21 and 65 can qualify for a personal loan. The minimum net monthly income required to qualify for a loan ranges from Rs. 15,000 to Rs. 30,000 per month. The borrower may also need to have minimal work experience, such as one year in current employment, or two years in total. Terms vary from lender to lender. In addition to this, the lender will also check your credit score before approving your loan application. A higher credit score can help you get a personal loan at a lower interest rate. Eligibility criteria are different for banks and non-bank financial companies (NBFCs). When it comes to lending standards, banks are slightly stricter than NBFCs. So, if you find it difficult to meet a bank’s eligibility criteria, you may consider taking out a personal loan from NBFC.
Loan amount you are comfortable repaying
While banks and other lending institutions are always willing to provide personal loans to their customers, you should only opt for a loan amount that you need and are comfortable repaying. Depending on your creditworthiness, your bank may also offer you a pre-approved loan which may seem lucrative. Don’t go for a loan just because it’s pre-approved and requires minimal documentation. A loan is a financial commitment that you will ultimately have to repay. Therefore, assess your purpose behind taking out a personal loan and make sure your need is a necessity. While deciding on the loan amount, also consider the equivalent monthly payment (EMI) that you can repay without disrupting your financial goals.
Compare the different personal loan products available on the market
Before availing the personal loan facility, you should compare the various personal loan products available in the market based on the interest rate, processing fees, penalty fees such as prepayment fees, pre-closing, etc. Prefer a loan that gives you the freedom to repay EMIs and pre-close the loan without incurring penalties. The term of the loan should match your needs. After comparing all loan products, you should choose the one that meets your needs and has the lowest cost of borrowing.
Settle for the lowest interest rate
Compared to secured loans, personal loans are generally offered at higher interest rates which vary between 9 and 24%. The higher the rate, the higher your EMI. So, when looking for a personal loan, check the interest rate offered by different lenders. The table below provides a list of private and public sector banks offering the lowest interest rates. Keep in mind that if you opt for a longer term for loan repayment, the EMI expense will be lower but the interest payment will be higher. And if you opt for a shorter loan term, the EMI expense will be higher but the total interest payment will be lower. Consider all of these aspects before settling on an interest rate.
|Banks||Interest rate (AP)|
|Bank of Maharashtra||9.45%|
|Bank of Punjab and Sindh||9.50%|
|Bank of Baroda||10.00%|
|Bank of South India||10.55%|
|Karur Vysia Bank||12.00%|
|Bank of Karnataka||12.45%|
Data compiled by BankBazaar.com from the respective bank’s website on December 28, 2021. Banks are listed in ascending order based on interest rate, i.e. the bank offering the interest rate The lowest interest is placed at the top and the highest at the bottom. * Rack interest rate; ** min APR from July 21 to September 21; *^for seniors
Choose the right lender
Eligibility criteria vary widely when you compare banks and NBFCs. Sometimes it is easier to get a personal loan from an NBFC because of its flexible eligibility standards. However, you can find banks that offer personal loans at a lower interest rate and lower processing fees. Thus, you should carefully select the lender based on their reputation, interest rates, flexibility, and other fees.
Things to keep in mind
If you fail to repay a personal loan on time, it can hurt your credit score and impact your prospects for future borrowing. So, make sure that you are able to repay the loan on time. It is advisable to keep your loan requirement below your repayment capacity to ensure financial comfort while servicing IMEs. If used wisely, it’s one of the easiest and fastest ways to organize money when you’re in a cash crunch.
The author is the CEO of BankBazaar.com. The opinions expressed are those of the author.