Personal loans offer instant access to funds to meet your emergency financial needs, making them highly popular among banking customers across India. The disbursement rate for personal loans has grown exponentially over the past couple of years. Banks and non-banking financial companies have made lending terms less stringent, while the advancements in technology have made the entire borrowing process easier and quicker. Many lenders disburse loans in a matter of seconds, making it relatively easy for anyone to gain access to money. If you are planning on taking a personal loan for the first time, the following are a few things you must keep in mind:
Considering the number of banks and NBFCs offering personal loans at attractive terms, choosing the right lender takes a lot of research and comparison. Lenders keep spamming people with calls and text messages, offering loans and other financial products and services like credit cards. It is important to refrain from falling for these calls and text messages. If you really want to take a personal loan, go online and compare various options in order to make an informed decision. There are several third-party sites such as BankBazaar.com where you can compare and apply with ease.
When you apply for a personal loan, you will be asked to submit a few documents for verification purposes. These documents include address proof, ID proof, income proof, bank statements, etc. Keep these documents handy as it will make the application process smoother and hassle-free.
Banks are masters of financial jugglery. They often offer loans at flat interest rates as a means to lure customers into believing that they are offered the best terms. However, flat rates are misleading as the reduction in balance post each EMI payment is not taken into consideration. As such, you will be paying a lot more towards the interest component of the loan. The reducing balance method, on the other hand, takes into consideration the reduction in balance post each EMI payment, thereby lowering your financial burden.
Lenders are never short of tricks up their sleeves with their offerings. One such ploy is the 0% EMI scheme which makes borrowers believe that they are getting the loan for free and that they only have to repay as much as they borrow. These schemes, however, come with high processing fees, which means that you will be paying more towards these charges than you would towards the interest component of a regular loan.
There are certain fees and charges that are applicable to personal loans, such as processing fees, foreclosure fees, etc. Look for these fees and charges in the loan document or on the lender’s website as doing so will ensure that you do not end up paying towards these charges later on.
Before sending out your application to a lender, it is essential to check your credit score and know where you stand. Since every lender has their own eligibility criteria and requires you to have a certain credit score to be eligible for their products, checking your credit score will tell you whether or not you are eligible for a loan from that particular lender.
Your existing debt must be taken into account prior to applying for a personal loan. If you have already taken a loan or have credit card dues to clear, evaluate your debt-to-income ratio to see if you will actually have enough money to repay the loan you wish to take. If your debt-to-income ratio is less than 30%, you can go in for a personal loan, but if it is higher, consider alternate options to a personal loan.
Most lenders have their own EMI calculator facility which allows you to check the repayment schedule of the loan before you even borrow the amount. All you have to do is enter the amount you wish to borrow along with the interest rate and the tenure of the loan, and the system will generate your EMIs and display an amortisation table that will help you understand how much you will have to pay on a monthly basis.
In case you wish to clear off your loan before the tenure ends, lenders usually charge foreclosure fees in order to recover some of the interest they expected to receive from the loan. It is for this reason you need to check the foreclosure rules carefully and see after how long you can close the loan, and what the fees associated with foreclosure are.
Keeping these few crucial points in mind before applying for a personal loan for the first time can go a long way towards ensuring that you have a smooth borrowing and repaying experience.
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