Personal loans are one of the most popular unsecured borrowing tools available in the market. They are easy to avail of as you do not need to pledge any of your assets as collateral or security. Unlike a home loan or a car loan that are product specified, a personal loan can be used for any purpose. The need to avail your first personal loan can emerge at any stage of your life. You may need a personal loan to get a home renovation done or meet your sudden medical expense. It can be your best financial buddy during any hour of a financial crisis.
If you are in the market to avail your first personal loan, there are a few important things that you should keep in mind. This article touches upon those crucial points to help you get the best deal. Take a look:
Check if you are eligible
The eligibility standards for each lender varies and is different for a salaried or a self-employed individual. Before you apply for a loan, you must check if you meet the eligibility criteria laid down by the lenders. Usually, people between the ages of 21 to 65 years can avail of a personal loan. The minimum net monthly income required to avail of a loan varies from Rs. 15,000 to Rs. 30,000 per month. The borrower may also need to have a minimum work experience, such as one year in the current job, or two years in total. The conditions vary from lender to lender. Besides this, the lender will also check your credit score before approving your loan application. A higher credit score can help you in getting a personal loan at a lower interest rate. The eligibility criteria are different for banks and non-banking financial companies (NBFCs). When it comes to lending norms, banks are slightly stringent than NBFCs. So, if you are finding it difficult to fit into a bank’s eligibility criteria, you may explore taking a personal loan from the NBFCs.
Loan amount you are comfortable to repay
While banks and other lending institutions are always forthcoming in granting personal loans to their customers, you should only go for a loan amount that you require and are comfortable repaying. Based on your creditworthiness, your bank may also offer you a pre-approved loan that may look lucrative. Do not go for a loan just because it is pre-approved and requires minimal documentation. A loan is a financial commitment that ultimately you will have to repay. Therefore, assess your purpose behind taking a personal loan and ensure your need is a necessity. While deciding the loan amount, also factor in the equated monthly installment (EMI) that you can repay without disturbing your financial goals.
Compare various personal loan products available in the market
Before you avail of the personal loan facility, you should compare the various personal loan products available in the market based on the interest rate, processing fees, penalty charges such as prepayment charges, pre-closure charges, etc. Prefer a loan that gives you the liberty to repay the EMIs and pre-close the loan without incurring penalty charges. The loan tenure should match your requirement. After comparing all the loan products, you should prefer the one that matches your requirements and that has the lowest cost of borrowing.
Settle for the lowest interest rate
Compared to secured loans, personal loans are usually offered at higher interest rates that range between 9-24%. Higher the rate, higher your EMI. So when you are looking for a personal loan, do 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 will opt for a longer duration for loan repayment, the EMI outgo will be lower but the interest payment will be higher. And if you will opt for a shorter loan duration, then the EMI outgo will be higher but the total interest payment will be lower. Factor in all these aspects before settling it for an interest rate.
|Banks||Interest rate (PA)|
|Bank of Maharashtra||9.45%|
|Punjab & Sind Bank||9.50%|
|Bank of Baroda||10.00%|
|South Indian Bank||10.55%|
|Karur Vysya Bank||12.00%|
Data compiled by BankBazaar.com from respective bank’s website on December 28, 2021. Banks are listed in ascending order on the basis of interest rate i.e. bank offering the lowest interest rate is placed at top and highest at the bottom. * Rack Interest Rate; ** min APR during Jul 21 to Sep 21; *^for senior citizens
Choose the right lender
The eligibility criteria vary significantly when you compare between banks and NBFCs. Sometimes it’s easier to get a personal loan from an NBFC because of its flexible eligibility norm requirements. However, you may find banks to be offering personal loans at a cheaper rate of interest and lower processing fees. So, you should carefully select the lender based on its reputation, interest rates, flexibility and other charges.
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 of future borrowing. So, make sure you are capable of repaying the loan on time. It’s advisable to keep your loan requirement lower than your repayment capacity to ensure financial comfort while servicing the EMIs. If used wisely, it is one of the easiest and fastest ways to arrange money when you are facing a cash crunch.