How to choose the right personal loan for your needs
We have often heard our friends applying for personal loans to meet sudden financial needs. However, most of the personal loans given by banks or financial institutions are mostly unsecured, thus, explaining the high-interest rates charged from the borrowers.
Suresh Sadagopan, founder, Ladder7 Financial Advisories, says, “The lenders will all look at current income, credit history, amount sought, etc. before deciding. If adverse, the rates will be high across the board. There may be those who may give loans with least paperwork or may be faster – but they will most probably charge a higher rate for higher risks and convenience offered.”
However, this does not mean that you must completely do away with the idea of applying for a personal loan to meet your sudden needs or pay off certain financial expenses.
Currently, there are numerous banks and online lending platforms trying to attract the attention of potential customers by offering them personal loans at attractive rates.
With so many lenders willing to lend you the requisite amount, it can be difficult to choose the right kind of personal loan that best suits our immediate fiscal needs. Paying attention to certain factors may ensure that you avail the best personal loan sans any unforeseen hassles. These include:
Find an easy lender: Simply said, opt for a lender with relatively easy criteria for borrowers.
Many banks or financial institutions require their clients to meet a host of principles or standards before granting them the extent of loans they are looking for. This may prove to be cumbersome to borrowers looking for easy personal loans that they can take and pay off with time.
Check interest rates and charges: Not all lenders charge the same interest rate, which means that some loans may be more affordable than others. This makes it more imperative for borrowers to check their lenders’ interest rates as these have a bearing effect on the interest payout. Saurav Goyal, CFO, Money View, says, “Rate of interest can be the primary factor for loan comparison irrespective of the interest rate method (Reducing interest or Simple interest). Pre-closure charges and processing fees should also be considered for a comprehensive comparison.”
Your lender may decide the personal loan interest rate based on your credit score and the ability to repay the loan within the given tenure. A higher credit score helps to avail loans easily. However, you may still assess your loan eligibility using an EMI calculator. Goyal says, “‘An EMI calculator is the most helpful tool for a prospective borrower as it helps him calculate EMIs using the ‘Internal Rate of Return’ method. This method is used by all lending institutions to calculate EMIs and hence is the most accurate one.”
Inquire about added fees: Taking a loan involves paying additional charges other than the interest amount. Aditya Kumar, founder & CEO, Qbera.com, says, “It is important that customers must inquire about the various fees and charges associated with their loan application to avoid getting potentially duped by lenders.
The most common fees include the loan processing fees (also known as administrative fees), penalty charges on late payments, pre-payment charges and EMI bounce charges.” Anuj Kacker, co-founder & COO, MoneyTap, says, “Apart from the interest rate, you must also carefully consider service charges and processing fees before applying for a loan. Make sure that you have a clear understanding of foreclosure charges, annual fee, overdue penalty, etc. Even a small penalty can add hundreds of rupees to the cost of your loan. So, keep an eye out for additional charges.”
Check for repayment flexibility: You would like to repay the loan at your convenience, which means that you would prefer a lender that allows flexibility of tenure for repayment.
C S Sudheer, founder & CEO, IndianMoney.com, says, “Lenders offer customers flexible repayment options to minimise defaults. Customers benefit from workable tenor by either increasing or decreasing EMIs. Those with high disposable income opt for prepayment or higher EMIs to reduce tenor, and consequently, interest outgo. Those with low disposable income opt for reduced EMIs, which increases loan tenure and interest outgo.” Spreading the loan interest EMIs over a convenient period ensures increased chances of repayment coupled with reduced chances of loan repayment default.
You may feel tempted to take a personal loan considering the ease at which one is available these days. A personal loan, though, may seem a convenient financial resource to pay off sudden expenses must be avoided. Choose the best personal loan wisely but ensure that you have enough savings to repay the debt incurred.