Personal loan is an unsecured credit option. Its proceeds can also be used for meeting any personal or business requirements. It has minimal to no document requirements and quicker disbursals, making it a go-to credit option for many consumers, especially in times of financial emergencies. When looking for a personal loan, many of us lack the right approach to finding the right personal loan offer. Also, with a wide range of lenders offering personal loans at widely varying interest rates, selecting the right loan offer has become even more challenging. To help you with the same, following are a few points that you must consider when choosing the loan offer:

Check offers from lenders with whom you have a banking relationship

Those looking for a personal loan should begin their search with lenders with whom they maintain their deposit, loan or credit card accounts. This is because many lenders offer preferential interest rates to their existing customers. Also, approaching these lenders first would help you know if they are offering any pre-approved personal loan offer for you. Lenders usually offer pre-approved personal loan offers to their existing customers having good credit profile. Such offers usually have lower interest rates, require minimal to no documentation and are disbursed instantly or within a few hours of applying for the loan.

Consider and compare other offers

Once you receive quotes from your existing lenders, check and compare personal loans offered by other banks and NBFCs. In this process, you can use the interest rates and other loan features offered by your existing lender(s) as a benchmark to compare the personal loan offers by banks and NBFCs.

Depending on your credit score and other aspects of your credit profile such as employment profile, occupation, income profile, etc., the personal interest rates offered can vary widely across lenders. The varying credit risk assessment policies of lenders can also give varied results for the same credit profile in terms of his loan approval chances and final rate of interest. Hence, to get the best possible deal, you should compare personal loan offers from as many lenders as possible. For this, you should visit the online financial marketplaces, as comparing and applying for personal loans through such marketplaces is quick, easy and does not adversely affect your credit score.

Tenure selection

Your personal loan tenure affects your loan EMI as well as the interest cost. Extending loan tenure reduces the EMI but increases the interest cost. Shorter tenure, on the other hand, increases EMIs but reduces the interest cost. Thus, when availing a personal loan, select tenure based on your repayment capacity.

Banks and NBFCs usually prefer approving personal loan applications of those having their EMIs, of existing loans and proposed personal loan, within 60% of their net monthly income. Anyone exceeding this limit usually has lower chances of getting personal loans. To prevent this, applicants should choose longer tenure to reduce the EMI of their proposed loan. 

Processing fees and other costs

Besides interest rate, additional costs like processing fee, documentation fee, etc. also contributes to the total cost of your personal loan. Among these extra charges, loan processing fee takes up significant portion as it usually varies from 0.5% to 4% of the loan amount. Some personal loan lenders might limit these charges regardless of the loan amount and others may waive them off during festive season or special offers.

Prepayment charges and conditions

RBI has forbidden banks to impose prepayment charges on floating rate personal loans. However, in case of fixed rate personal loans, banks are free to levy these charges. Many lenders also restrict borrowers to partly prepay or foreclose their personal loans until the repayment of a fixed number of EMIs. Therefore, when looking for a personal loan, remember to consider the prepayment charges and its conditions, especially if you are planning to prepay or foreclosure the loan in future. 

Loan disbursal time

Banks and NBFCs offering personal loans through end-to-end digital onboarding process usually make disbursals within a few days. Those availing pre-approved personal loan offers may get these loans even sooner as such loans are disbursed instantly or within a few hours. For instance, pre-approved customers applying for HDFC personal loan online can get their loans disbursed within 10 seconds of making loan application. However, in case of other loan applicants, their turn turnaround time for loan disbursal can go up to four business days. Hence, those requiring funds urgently should also compare the loan disbursal time when considering loan options. 

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