Financial emergencies and cash shortages are the perfect times to use personal loans. Being approved for a personal loan is now much simpler and quicker than it was a decade ago thanks to the abundance of banks and Non-Banking Financial Companies (NBFCs) that offer various types of personal loans, including regular personal loans, instant personal loans, pre-approved personal loans, pre-qualified personal loans, etc. However, rushing into a choice and selecting the incorrect Personal Loan or lender might result in disappointment down the road.
Even though personal loans offer a number of advantages, it’s important to realise that defaulting on a personal loan can have unfavourable effects that may lower your credit score. Your chances of obtaining a personal loan in the future may consequently decline as a result of this.
Personal loans have much higher interest rates than other types of loans, so you should keep that in mind. Simply put, these collateral-free loans are given to borrowers without any sort of guarantee, which results in the interest rates spiralling out of control. Any financial requirement of the individual may be met by personal loans. Lenders will not restrict or monitor how the borrowed money is used in any way.
6 Ways to choose the right Lender for Personal Loan
1. Interest Rate
Since personal loans have the highest interest rates, which typically vary from 11% p.a. to 28% p.a., this should be the main determining factor when selecting the Personal Loan Lender. You wind up paying much more than the principle amount if your payback period is greater than four to five years. Many banks entice consumers with various offers by slightly lowering the yearly interest rate by 20bps to 50bps (i.e., 0.20% to 0.50% p.a). Ideally, if your credit history and score are strong, you may use them as a negotiating chip to get your bank to offer you a lower interest rate.
Furthermore, a lot of lenders provide EMIs with no fees or no interest when financing the purchase of consumer durables. To make up for this, lenders frequently charge processing fees instead of cash discounts, which you would otherwise receive. As a result, before selecting a personal loan lender, you should assess and analyse your whole expenses and make a wise choice.
Deciding on the loan amount you want to borrow is one of the most important steps before taking any action about your choice to apply for a personal loan. It’s crucial to decide on the loan amount you want to take out depending on your financial needs before moving on to determine your equated monthly instalment (EMI) payments based on the loan amount and the duration of the loan.
You may choose a personal loan with lower monthly payments by comparing the loans provided by several providers. Therefore, before choosing a lender, it is wise to weigh all fees and charges and determine the loan’s overall cost.
3. Processing Period
There are many sorts of personal loans available nowadays from banks and NBFCs. Compared to regular personal loans, instant and pre-approved loans can be obtained more rapidly since they are frequently provided to repeat clients with strong credit histories. If you need money right away, it’s best to check with your primary bank or current lender first. They may be able to provide you with a Personal Loan right away at a competitive interest rate. A few minutes to 48 hours may pass before you may apply for some rapid loans. Contrarily, depending on the lender’s policies and your credit history, regular personal loans may take anywhere between 7 and 15 days to process.
4.Charges For Prepayment And Foreclosure
The foreclosure and prepayment fees are another set of costs that you need to watch out for. If the borrower intends to pay off their loan before the loan term, then these fees will apply.
While some banks may decide not to charge any fees for foreclosure, the majority of banks charge between 2% and 5% of the total sum. Comparing these fees will enable you to choose lenders who provide the most flexibility for repayments, whether partial or full.
5. Calculations of EMI
It’s imperative that you get familiar with the EMI calculating procedure before taking out a loan.
Knowing this can assist you assess your ability to make timely loan repayments. Understanding how these EMIs are calculated is essential if you want to avoid paying more than you have to with choices like no-cost EMI and advanced EMI available on the market.
6. Additional Charges
You have to pay more than just the interest rate in order to obtain a loan. The cost of processing your loan application is determined by the banks or other financial organisations. This processing charge, which may be a fixed rate or include 1% to 3% of the loan amount, will raise the price of your loan significantly.
Furthermore, once you have enough money, it is wise to foreclose on your loans to avoid paying interest on future EMIs. You should be aware that if you wish to foreclose on your personal loan, the majority of banks and financial institutions levy pre-payment costs. The fees varies from business to business and often range from 2% to 5%, which makes a significant difference, particularly when the dues are substantial. Determining the entire cost of the loan before choosing a lender requires taking into account all fees and charges.
There are many possibilities available when applying for a personal loan because practically all banks and NBFCs provide these loans. Make careful to evaluate several lenders based on the many factors mentioned above, though, in order to reap the greatest rewards. When you have no alternative financial assistance and an urgent need for cash, a personal loan is your best option in an emergency. Unfortunately, people frequently ask for personal loans to satisfy their want for immediate pleasure and stress themselves out by making high EMI payments. Therefore, reconsider and avoid taking out a personal loan if you want to buy that expensive item, jewellery, or device that may be delayed easily.