Personal Loan is a popular borrowing option among consumers as it comes with minimal documentation, faster loan disbursal, no restrictions in end usage of loan proceeds and no requirement of furnishing collateral or security. However, the interest rates and processing fees for personal loans offered by both banks and NBFCs vary widely based on their loan applicants’ credit scores, income, occupation profile, etc. This makes the task of choosing the right personal loan lender difficult for many.
Here are some important factors that loan applicants should consider for selecting the right personal loan lender:
Compare the personal loan interest rates of multiple lenders
Many lenders offer personal loans at preferential interest rates to their existing customers. Therefore, prospective applicants should first look into the personal loan schemes and the interest rates offered by banks/NBFCs with whom they maintain deposit accounts, loans or credit cards. Applicants can then use those rates and other loan features as a benchmark against the personal loan interest rates offered by other lenders.
Then, the prospective borrowers should visit online financial marketplaces to compare the personal loan interest rates offered by other lenders based on their credit profiles. For example, many lenders offer personal loans at lower interest rates to those having higher credit scores. Similarly, some lenders have set their differential interest rates for applicants on the basis of their occupation profiles. Many lenders also offer special personal loan interest rates during festive seasons. Visiting an online financial marketplace would allow prospective borrowers to compare the personal loan interest rates offered by multiple lenders through a single platform.
Compare the processing fees and other charges levied by personal loan lenders
Loan applicants should be aware that lower personal loans interest rates does not necessarily mean that it is the right personal loan for you. Lenders usually levy additional charges on personal loans including processing fees, part prepayment/foreclosure charges, charges on late payment of EMIs, cheque bounce charges, etc. which increases the total credit cost for borrowers. Processing fees is a major expense for any personal loan borrower as it usually ranges between 0.5% and 4% of the loan amount. However, some banks & NBFCs offering personal loans waive off the processing fees for their loans during festive offers while others also have capped the processing fee irrespective of the personal loan amount.
Compare the prepayment/foreclosure fees charged by lenders offering personal loans
Loan applicants should also consider prepayment and foreclosure charges while evaluating the personal loan schemes of any lender. According to the RBI’s regulations, banks offering personal loans cannot levy prepayment/foreclosure charges on personal loans availed at floating interest rates. However, lenders offering personal loans at fixed interest rates are allowed to charge prepayment or foreclosure fees from their borrowers based on their discretion. Some lenders allow loan foreclosure/prepayment of personal loan only after the repayment of a pre-determined number of EMIs. Thus, prospective borrowers who wish to prepay their personal loan in future should carefully compare the charges and restrictions related to prepayment/foreclosure before making the loan application.
Check the turnaround time for personal loan disbursal
Lenders usually take between 4 to 7 days to disburse personal loans. However, with the emergence of an end-to-end digital onboarding process, many lenders are now offering digital personal loans with faster loan disbursal compared to personal loans offered through offline channels. Many lenders also offer pre-approved personal loans to their select existing customers having good credit profiles with instant or same-day loan disbursal. Therefore, loan applicants should assess the turnaround time for loan disbursal, especially if they require funds to meet urgent financial shortages or emergencies.