A personal loan is one of the most common types of loans taken out by people. The fact that lenders do not restrict or limit the final use of the cash granted with such loans, unlike conventional loans, is a significant factor in their popularity. This implies that they can be put to any use the borrower thinks is right.
One of the first things you should know when applying for a personal loan is that the interest rate is higher than it is for other types of loans. This is due to the ease with which they may be obtained, the straightforwardness and simplicity of the loan processing, and the fact that no collateral is required.
But in order to get the greatest price on a personal loan, a borrower must be aware of and stick to a few rules. Here are a few rules.
Determine the interest rate
When applying for a loan, interest rates are arguably the most crucial factor to consider. You should always compare loan offers from many lenders to get the one with the best interest rate. To determine interest rates for various loan amounts across tenures, utilize a personal loan EMI calculator. This is a service that is accessible on the majority of bank and NBFC websites.
Choose a lender wisely
Personal loans are offered to borrowers by banks, fintech organizations, and NBFCs. These three may, however, have different personal loan terms and conditions. NBFCs and banks typically provide you with lower interest rates and have strict personal loan eligibility to meet in order to qualify for a loan. You should check these before submitting a loan application to a particular organization. This is made easier by comparing the terms and conditions of a good number of lenders.
Maintain a good credit score
Since personal loans are an unstructured type of credit, lenders will review an applicant’s credit score before accepting one, as this reflects the borrower’s creditworthiness. A score of 750 is typically regarded as excellent because credit ratings can vary from 300 to 900. Loans with low credit scores may be denied or granted with higher interest rates.
Regular or timely payment of credit card bills and EMIs can significantly contribute to keeping a good credit score.
Choose short-tenure loans
Long repayment terms for personal loans may reassure you of low-interest rates. But you may very well end up paying more to repay the loan in the long run. Keep loan tenures low if you can afford the corresponding monthly payments to keep the total repayment under control. Using a personal loan EMI calculator can help you make the best decisions.
Ensure regular repayments
Maintaining a good credit history and avoiding late fees and other penalties are both made possible by consistent and regular repayments. A negative comment could also reduce the likelihood of future loan approval.
Avoid approaching multiple lenders
Approaching numerous lenders at once may not be advantageous for the borrower because it can result in multiple queries. It gives the impression that the borrower is in a desperate situation for credit, which may not be positive and make lenders reluctant to issue credit.
Therefore, it is important to review and compare the eligibility requirements of various lenders. It has to be done before approaching just those where the requirements are satisfied.
You might not be aware of the costs and fees associated with loans when you apply for them. You may end up paying more than you had originally agreed to due to processing fees, late payment penalties, and other hidden costs.
Foreclosure or prepayment fees are a few additional essential factors to consider when choosing a lender. Sometimes borrowers are able to prepay a loan, but other factors, such as foreclosures or prepayment penalties, make it risky. To avoid future disappointments, one must ascertain the necessary information in advance or choose dealers who do not ask for prepayment charges.
Beware of schemes with 0% EMI
In partnership with lifestyle or retail companies, several lenders frequently entice customers with 0% EMI plans. As hefty file costs and processing fees for such programs are sometimes disclosed to borrowers only at the last minute, borrowers frequently find up paying interest.