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There may be different reasons to opt for a personal loan. While we look forward to getting loans from a reliable bank at affordable rates, with favourable terms and conditions, the comparison becomes essential.
We also go through the criteria defined by numerous banks, to identify each one with the best approval process. However, to make this process easier, and to know how to opt for the right personal loan, you may consider the following tips, conditions and requirements.
Let us look at some factors that you should compare, to conclude which bank to opt for in order to avail personal loans.
1. Your Repayment Capacity and the Credit Score:
You have to mandatorily maintain a good CIBIL or Equifax or the Experian credit score for taking personal loan. Wondering what a CIBIL score is? CIBIL is a Credit Information Company, CIC, just like the Experian or Equifax. These credit bureaus collect, record, and analyse the details of your borrowing and repayment history with the banks or lenders.
- The credit report is viewed to judge your trustworthiness as a loan borrower. The history of your credit behavior with any kind of debt gives the lender an idea of your behavior for the future.
- Along with the credit history, the lender will also check for your repayment capacity. If you have a higher disposable income, and lower financial liabilities, then chances of getting the loan approved are greater.
- You should come across as a responsible borrower, who can repay the EMIs in time. You should also come across as someone who is sure to repay the instant personal loan without missing or delaying the payments.
Thus, to avail personal loans, it is recommended to have your CIBIL score more than 700. You must also have a great repayment capacity. These will improve the chances for you qualifying the most critical criteria that banks consider about the applicant.
2. Know the Exact Borrowing Amount:
The applicant is expected to know how much exactly he or she needs for their requirement. When you communicate the exact amount, the bank finds it much favorable to sanction the loan instead to someone who’s not even sure how much loan he/she wants.
3. The Purpose of Taking the Loan:
Along with the amount, do communicate the reason why you want to opt for a loan, though it is not mandatory. The fact that the bank has to decide whether to lend or not, a reason gives them an idea of the level of risk they are taking by offering funds to you. Moreover, you tend to look more genuine relatively.
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4. If Taken for Business Purposes, Show the Spending Pattern:
Personal loans are commonly opted for by businessmen to either establish a new business, or buy new assets for their existing business, or by salaried individuals to meet financial needs. When you communicate to the bank about your plan to purchase an asset that will bring higher returns in the near future, the banks are more than satisfied. So, if you give the impression to be a good candidate with a good CIBIL score, and you have a strong reason explaining how the loan will help you make the profit, the lender may also approve your loan at flexible EMI repayments.
5. Ability to Repay EMI Every Month:
The actual EMI will obviously depend on the tenure of the loan you choose. A long tenure will lead to small amount of EMIs and vice versa. However, a long tenure results in higher interest eventually making your total loan-availing-cost quite high. The reason being, the interest is calculated on the total amount to be repaid. Thus, make sure to work on a plan deciding what EMI scheme will be the best for you.
6. Shop Around for a Suitable Loan Offer:
It is one of the most underrated steps among individuals planning to take loans. Multiple banks offer personal loans and not just the one where you have a bank account. Consider the bank that provides loans at very low interest rates and have the best terms. Since most of the banks have similar kind of terms, still there might be variations where some banks charge fewer penalties and may have friendlier conditions. Thus, make sure to shop around before selecting your lender.
7. Compare the Interest Rates:
Compare the interest rates of different banks that you find, are reliable enough to receive credit. Some banks may charge a 10.50% to 10.99% as the rate of interest while the other may charge more. Though we would consider going for lower interest charging bank, it is vital first to read the terms and conditions with the view to avoid bearing additional costs in future. The best way to do this is to check the offers and interest rates on personal loan on the official website of the bank.
8. Other Fees or Charges:
Banks usually charge a small amount of fee while availing loans. There are different types of charges a bank may charge, right from prepayment charges to a late fee, cancellation charges, processing fee, cheque bounce charges, etc. Make sure the cost does not go beyond 3%. Next, compare the charges among some of the top selected banks offering loans at affordable rates.
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9. Repayment Flexibility:
Banks offer different tenure schemes on personal loans. However, a long tenure would mean payment of more amounts of interest rates. Moreover, if you want to pay early or fail to pay on time, banks charge some amount of fee on the closure of the loans. In order to avoid bearing enormous costs, it is imperative that you consider the flexibility of repayments.
Suppose you take money for your business and find out that you have made profits much before you even thought of, and thus you plan to repay the loan. If there are charges on the same, the loan gets expensive. Secondly, look for your budget that you can consider for repayments of EMIs. The refunds should be flexible enough, so that they do not overburden you.
10. Opt for an Affordable EMI:
Before you opt for a loan, ensure that you will be able to make regular payments without any chance of penalties comfortably. Make an estimate to identify what loan EMI calculation that is amount which you can pay. Loanbaba makes it easier for you with its EMI calculator that allows you to locate and obtain a decision using your inputs regarding the loan amount, interest rate, processing fee, pre-payment possibilities and the tenure of the loan.
11. Identify Other Loan Alternatives:
Personal loans are not always the only option to get away from emergencies. If the amount is not much, you may consider asking your family and friends to lend you some money. This way, the entire hassle of paying interest rates is removed, and even if you pay them an extra amount, you will not have to bear any prepayment expenses.
Apart from the tips shared above, you can also consider the penalty charges on late payments of EMI. Further, identify the credibility of the bank from which you borrow. Make sure that the financial institution has a good customer support and give you a flexible tenure to repay the amount. Last but not the least, opt for loans only to meet your financial goals and be sure of your ability to make repayments.