Getting any financial aid comes with an underlying commitment to return the borrowed amount timely. This also applies to personal loans, regardless of your lender’s policies. Choosing the right lender can be a game-changer for most people and keep them out of the debt trap. It literally translates to better terms on loan, lower interest rates, flexible loan tenure and a higher loan amount. However, these benefits are also contingent on the borrower’s profile. Therefore, one must conduct their own research to choose the best personal loan in India.
Key considerations for choosing personal loan providers
Choosing the right lender can be tricky, but one can really hit the jackpot with some planning. Here are some practical tips to get a personal loan from the right lender.
1. Check and compare interest rates
The first consideration in this list is an absolute no brainer. A lower interest rate means a lower outstanding balance and monthly EMIs. One must check and compare the interest rates offered by different loan providers to find the cheapest loan. The easiest way to compare interest rates on various loan products is by visiting the lender’s website. Most lenders offer a personal loan in the interest range of 10% to 20% per annum. However, it can vary greatly depending on the borrower’s credit profile.
2. Check for repayment flexibility
Another critical thing to look for when it comes to borrowing money through a personal loan is repayment flexibility. Many personal loan providers charge a prepayment fee for repaying the loan earlier than the maturity date. Some also have a no prepayment charges offer. Financial institutions can charge between 2% to 5% of the balance paid in advance as a prepayment fee. Comparing the repayment flexibility between different lending institutions is essential to finding the best deal.
3. Choose an affordable EMI option
Most borrowers opt for an EMI plan to repay the loan amount borrowed. This can vary based on their budget and overall repayment capacity. Choosing an affordable EMI is highly recommended if you don’t want to get trapped in a debt spiral. Several factors influence the EMI, including total borrowed amount, interest rates, loan tenure, etc. If you can’t reduce the total amount borrowed, increase the loan tenure to reduce your EMIs. Choosing affordable EMIs can help you avoid defaulting on loan repayments. Defaulting on these loans can put a significant dent in your credit score.
4. Maintain a good credit score
For choosing the best loan product, one needs to be eligible for the same. There is an easy way to improve your eligibility for good loan products. You can do this by maintaining a good credit score. A credit score over 750 can help you get favourable terms on your loan, including a lower interest rate, higher loan amount, etc. Repaying existing EMIs and credit card bills on time can help to improve the credit score.
5. Don’t apply for multiple loans
It is one of the most common mistakes that people make when it comes to applying for a personal loan. One should refrain from applying for multiple personal loans. Every time a person applies for a loan product, the lending institution conducts a hardline credit enquiry. A hardline credit enquiry can lower your credit score by a few points. Imagine the drop when you apply with multiple providers. It also gives the opinion that you are desperate for credit.
6. Check the eligibility criteria
Checking the eligibility criteria helps to keep you ahead in the game. Different lenders have varied eligibility criteria to offer a loan. The most prominent eligibility criteria are related to income and employment. It helps the lender to assess the repayment capacity of a borrower. The minimum income requirements might also vary depending on your geographical location. For example, if you reside in a metro city, you might have to earn a higher income to be eligible for the loan.
7. Processing charges and documentation
A lower interest rate indeed sounds like a lucrative deal. However, high processing charges can add to the loan’s costs. Therefore, it is highly recommended to choose a personal loan with lower processing charges. Also, make sure that it has minimal documentation requirements too. One can also choose to apply for a paperless personal loan by submitting the required information online. It helps to get the loan processed and approved quickly.
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