Taking a personal loan is a big financial decision that requires careful consideration. With so many options to choose from, it can be overwhelming trying to determine which lender is the best fit for your needs. This blog post will provide tips and guidance on how to select the most suitable personal loan lender in India.
Compare Personal Loan Interest Rates Between Financial Institutions
The interest rate is perhaps the most important factor to compare when evaluating personal loan providers. This will significantly impact how much you end up paying over the loan's lifetime. Be sure to compare the interest rates being offered by multiple personal loan providers in India.
Focus on the lowest interest rate you qualify for, not necessarily the advertised rates, which may be for select customers with excellent credit. Personal loan interest rates can range anywhere from 10% to 42% per annum, depending on your credit score and income level. Opting for a low interest rate personal loan lender can save you thousands of rupees over the loan repayment period.
Check for any Hidden Charges or Fees on the Personal Loan
In addition to the interest rate, you also need to factor in any processing fees, prepayment charges, late payment fees or other charges associated with the personal loan. Read the fine print carefully to have clarity on all applicable charges. Avoid personal loan providers in India that levy excessive or hidden charges that can unnecessarily inflate the total cost of your loan.
Choose a personal loan provider that is transparent about their fees and charges. Being aware of all charges will prevent any surprises later.
Understand Eligibility and Documentation Required for Personal Loan
Eligibility criteria, loan amount offered, and documentation required for a personal loan vary from one personal loan provider to another. Before applying, check the financial institution’s website or speak to a representative to understand their eligibility norms and the documents needed. This will help ensure your loan application is not rejected.
Most financial institutions will require proof of identity, residence, income, employment and assets. However, the acceptable documents may differ. For example, some personal loan providers in India may require the last 6 months’ bank statements while others may be fine with just the latest monthly statement.
Also, confirm if the personal loan provider has any minimum or maximum age, income requirements or if they offer loans to self-employed individuals. This will help avoid wasting time applying with banks and NBFCs that may reject your personal loan application.
Compare the Personal Loan Prepayment Policies
Check if the personal loan lender allows loan foreclosure or early repayment. Many people take personal loans for short-term needs and may want to prepay once their requirement is met. In such cases, you should look for financial institutions that do not levy hefty prepayment charges.
On the other hand, some banks charge a penalty of up to 2-3% of the outstanding loan amount if you foreclose before the tenure ends. Understanding the prepayment policy is important if you wish to repay the loan early.
Evaluate Turnaround Time for Personal Loan Disbursal
How quickly you get access to funds should also weigh in on your lender decision. Most banks and NBFCs can process and disburse a personal loan in 3-7 working days from submission of documents, which again, can vary depending on the provider and your financial profile.
If urgent access to funds is critical for you, explore such digital loan providers that provide swift loan disbursal through seamless online processes. However, do evaluate their interest rates and charges before applying.
Understand Repayment Terms
Before finalising your personal loan provider, be clear on their repayment terms - tenure options available, EMIs, repayment dates, payment modes etc. Many banks and NBFCs offer flexible tenure from 1 to 5 years. However, some may not offer longer tenure loans for certain customer segments like salaried individuals.
Also, check when your EMI is due - some banks expect repayment on the 1st of every month, while others may give you flexibility to choose a repayment date. See what payment modes are accepted - NEFT, cheque, debit mandate, etc. Understanding the repayment terms will ensure you pick an option that best suits your cash flows.
Check Customer Reviews and Complaints
One of the best ways to evaluate a personal loan provider is to check online customer reviews and complaints. This will give you insights into current customer experiences - positives like quick processing and responsive support, as well as common issues faced by borrowers.
Search for the bank or NBFC on popular review sites. Also, check ratings and reviews on Google and Facebook. Avoid financial institutions with too many negative reviews, as you may encounter similar issues. Good reviews and ratings are a sign that the loan provider offers satisfactory services.
Compare Offers and Sales Promotions
Many financial institutions offer limited-period sales offers, such as processing fee waivers, cashback on timely repayments, gift vouchers on loan disbursal, etc. Check what promotional benefits each shortlisted personal loan provider offers and make your choice accordingly. Just ensure there are no hidden costs attached to such offers.
Occasional credit users, such as first-time borrowers, can also benefit from loans on promotional terms from financial institutions running acquisition campaigns targeting new customers. However, the long-term cost should take precedence over short-term promotional gains.
Check for Digital and Mobile Capabilities
Check how digitally savvy the financial institution is to ensure a smooth and convenient loan journey. These days, leading banks and NBFCs offer an end-to-end paperless process via online applications, eKYC video verification, electronic document submission and instant loan approval.
Many NBFCs, like Shriram Finance, also provide mobile apps that allow you to manage your account on the go via your mobile phone. Availing a loan from an NBFC with robust digital capabilities can enhance your borrowing experience.
Compare Based on Convenience and Accessibility
Beyond costs and benefits, convenience and accessibility are key aspects affecting the lending experience. Consider factors like the institution’s proximity to your home or office, the availability of local branches and customer service centres, the doorstep services offered, etc.
Those located far from the branch’s physical presence may benefit more from providers with wider geographic coverage through extensive branch networks and online services.
Trust Only RBI Approved Institutions
With the growth in fintech firms, there are now many non-bank financial providers as well in the market. While they may offer personalised services, ensure any financial institution you choose holds a valid NBFC license from RBI and complies with regulations. Avoid unregulated lenders that may levy unlawful charges and rates.
The Bottom Line
By following these guidelines during your research, comparison and application process, you can identify and select the one of the best personal loan lenders for your specific needs and profile. Taking some time to evaluate multiple options will help you make an informed borrowing decision.
FAQs
1. How do I check my eligibility for a personal loan?
Most financial institutions mention the eligibility criteria on their website. Your age, employment, income, credit score, and repayment capacity are key. You can get a free credit report to check your score. Use online eligibility calculators provided by the banks and NBFC to learn about your personal loan eligibility.
2. What documents do I need for a personal loan application?
Common documents include identity proof (Aadhaar, PAN Card), residence proof, latest salary slips, bank statements, ITRs, employment proof, and a photograph. Keep soft copies of documents ready for easy upload/submission.
3. How much time does it take to get loan approval and disbursal?
Once the application is submitted and verifications are completed, approval can take 2-3 days. The disbursal timeline ranges from 2-7 working days for most banks post-approval. Some new age fintech institutions promise instant approval and disbursal. However, the total time taken to get your personal loan approved and disbursed also depends on the financial institution's policies.
4. What are the charges involved in a personal loan?
The main charges are the interest rate, processing fee (up to 2%* of the loan amount), prepayment penalties (if any), late EMI payment fees, cheque bounce charges, etc. Read the terms of your personal loan provider to understand.
5. What is the minimum and maximum amount I can get as personal loan?
The minimum loan amount is usually ₹20,000. The maximum amount depends on eligibility, income level, and policy but typically ranges from ₹10 lakhs to ₹15 lakhs. Some financial institutions offer higher limits to select customers. The minimum and maximum limits can depend on your loan provider's terms and policies.
6. How does a personal loan impact my credit score?
A new loan can cause a small drop in score, but timely repayments will have a positive impact. Avoid loan rejection, as it can negatively impact your credit score. Check eligibility beforehand.
7. What if I miss my personal loan EMI payment due date?
You will have to pay late payment charges, usually 2-4% of the overdue amount. A delay beyond 60 days can impact your credit score and lead to the account being tagged as a non-performing asset (NPA).
8. Are part-prepayments allowed on my personal loan?
Most loan providers in India allow part-prepayments, but some may have a minimum amount limit. No charges are applicable on part-prepayments. Full prepayment will attract charges in cases where the bank or NBFC has that policy.
9. How do I enhance my chances of personal loan approval?
Maintain a high credit score, manage credit utilisation, have a stable income, build a relationship with the bank through a savings account, limit loan applications, and keep documents ready.
10. What factors impact the personal loan interest rates offered to me?
Key factors are credit score, annual income, employer profile, location, existing relationship with the bank or NBFC, loan amount and tenure. Rates are higher for high-risk applicants.
