Personal Loans are among the most popular loans availed by people. A major reason for their popularity is that lenders do not limit or restrict the end-use of funds provided with such loans, as is the case with other loans. This means that they can be used for any purpose as the borrower thinks fit.
The most common uses are being used to fund expenses such as a long due vacation, and family functions such as a wedding or birthday ceremony.
These are also often commonly used for making down payments for a house or a car or even for home renovations or interior furnishings.
However, there are certain rules that a borrower needs to ascertain and comply with to land the best deal on Personal Loans.
Here are a few rules ::
1:Ascertain the Interest rate
Prior research by prospective borrowers to check personal loan interest rates, terms, and conditions, by visiting the sites of different lenders can serve greatly in landing a sweet deal on such loans.
EMI calculators easily available online can also be used to identify the most suitable options.
2:Choose a lender wisely after proper research and due diligence
While Banks, NBFC (non-banking finance companies) and an ever-growing list of fintech entities all offer personal loans, the terms and conditions differ between traditional banks and the new age fintech natives. While Banks and NBFCs may purportedly offer loans at lower rates of interest, certain terms and conditions may not be suitable for some borrowers due to specific norms. Also, other lenders may have a more suitable offering. Comparing the terms of the loan along with interest rates and charges via an aggregator online can also be a great idea.
3:Maintain a robust credit score
Since personal loans are a form of unstructured credit, lenders will check the credit score of the applicant before approving such a loan, which indicates a borrower’s creditworthiness. As credit scores range between 300 and 900, a score of 750 is generally considered good. A low credit score can lead to loans being declined or approved at higher rates of interest.
Regular or timely payment of EMIs and credit card bills can help effectively in maintaining a good credit score.
4:Opt for Short tenure loans
Borrowers may easily be tempted by longer tenure loans due to lower EMIs. However such loans will mean a higher repayment over the entire term as the outstanding amount will continue to attract interest each month. Short-term personal loans keep the total amount in check. Also, personal loan calculators help in evaluating the best options.
5:Ensure regular repayments
Regular and timely repayments help maintain a great credit history and also to avoid late payments and other penalties. Furthermore, an adverse remark could impede the chances of another loan approval later.
6:Avoid approaching multiple lenders
Approaching different lenders simultaneously may not be good for the borrower as it can lead to multiple inquiries. It makes it seem that the borrower is desperate for credit, which may not seem favorable and lenders may turn cautious about extending credit.
It is, therefore, advisable to research and evaluate the eligibility criteria of diverse lenders and approach only those where the criteria are met.
7:Examine the fine print
The borrower must find out any hidden charges which include processing fees, late payment charges, or any other embedded charges that can inflate the total outflows.
If there are, budget for them or figure out a way to avoid them.
8:Foreclosure charges
Among other relevant criteria in selecting a lender are foreclosure or prepayment charges. Sometimes, borrowers are in a position to prepay a loan; however other foreclosures or prepayment charges do not make it worthwhile. One must find out relevant details in advance to avoid disappointments in the future or select vendors with no prepayment charges.
9:Beware of 0% EMI schemes
Some lenders often lure borrowers with 0% EMI schemes in collaboration with lifestyle or consumer goods retailers. Borrowers often end up paying interest as high file costs and processing charges for such schemes are often revealed to them only at the last minute.
10:Avoid Advance EMIs
An advanced EMI effectively raises interest rates and borrowers will end up paying more than what is mentioned. Some lenders may ask for advance EMIs from borrowers during loan disbursal. It is considered prudent to avoid advanced EMIs and choose lenders or personal loan apps that require regular payments only.
In case of rejection of a loan application by a lender, it is advisable to wait at least 6 months before you reapply. If the reason for rejection was a poor credit score, try improving your score in these 6 months by making outstanding payments. Applying to other lenders after rejection can be futile and cause your credit score to dip further due to multiple rejections which are never good.
It is always best to buy loan protection insurance cover, which covers your liability in case of an unfortunate incident that can saddle your family with the payments. Several banks offer insurance to cover job loss, accidents, disabilities, and unfortunate death.
Another vital aspect is applying for the right amount of loan. The quantum of loans should ideally be based upon what you can comfortably repay at a later stage. Therefore, assess your needs first and calculate your expenses before deciding on how much to borrow.
FAQS 10 Basic Rules to get the best deal for Personal Loans
1: What is the meaning of personal loans?
It is an unsecured credit provided by banks and financial institutions based on several factors such as employment history, repayment capacity etc.
2: How to get a lower interest rate on personal loans?
A good credit history is one factor that helps you to fetch a lower interest rate. Other than this, maintaining a good repayment history and credibility can also help in the same.
3: What is the maximum tenure of a personal loan?
The maximum tenure of a personal loan is five years but depends on each lender and loan provider.