There may come a time in your life when you have a sudden financial need. A personal loan comes in handy in such a situation. However, there are a few factors to consider if you want to get a personal loan at better terms and conditions.
- Review Interest Rate
The first step towards getting the best deal on a loan is to check the interest rate. The interest rate has a direct implication on the EMI and your budget. Let’s look at an example to help you grasp the concept.
Assume two friends, Vivek and Vishal, each take out a personal loan for the same amount and term but at a different interest rate.
|Principal Amount||Rs. 5,00,000||Rs. 5,00,000|
|Tenure||5 Years||5 Years|
|Monthly EMI||Rs. 10,871||Rs. 11,249|
|Interest Payable||Rs. 1,52,273||Rs. 1,74,938|
|Total Payable||Rs. 6,52,273||Rs. 6,74,938|
The table states that at the end of the loan term, Vishal will end up paying Rs 22,665 more than Vivek. As such, if you want to get a personal loan at a reasonable rate, you must always consider the interest element.
- Carefully Decide on the Lender
You will find several lenders offering personal loans in your city. But to choose the best among them is a tedious task. Each lender’s personal loan eligibility criteria are different. The documentation process also differs from one lending institution to the next. As a result, it is critical that you undertake thorough research and select the best option for you. It will help you save a lot over time.
- Credit score is Crucial
Keep yourself informed about your current credit score. The three-digit numerical expression is critical in determining whether you will get a personal loan or not. Having a poor credit score might result in loan rejection. Even if the lender approves your application despite your poor credit, you might have to pay a higher interest rate.
The following are some of the tips to improve your credit score.
- Pay off your previous debts
- Make EMI payments on time.
- Keep an eye on how much credit you are using.
- Maintain a balance of short and long term loans, as well as secured and unsecured loans, in your debt portfolio.
- Choose Shorter Tenure
Many people advise taking out a personal loan with a lengthier repayment period. They feel it will help to keep one’s finances in check. However, a close examination of its implications using an EMI calculator reveals that a shorter term saves a significant amount of money in interest payments. Refer to the following table to understand this concept in a detailed manner.
|Parameters||Loan A||Loan B|
|Loan Amount||Rs. 5,00,000||Rs. 5,00,000|
|Tenure||5 Years||3 Years|
|EMI||Rs. 11,122||Rs. 16,607|
|Interest Payable||Rs. 1,67,333||Rs. 97,858|
|Total Payable||Rs. 6,67,333||Rs. 5,97,858|
The table shows that while a shorter term increases your EMI burden, it saves you a lot of money on interest. The interest rate difference between the two loan alternatives is Rs. 69,475. Furthermore, if you choose a shorter term, you may be able to get a personal loan at a low-interest rate.
- Check for Hidden Charges
Hidden fees are extra costs. If they are added to your contract, they might cause you problems in a variety of ways. This expense could be due to loan closure, partial payments, rescheduling, or other factors. If you see something strange in your agreement, don’t be afraid to ask the lender about the same. Borrowers should also consider the various loan-related fees, such as processing fees. These small details could help you get a personal loan at the best possible deal.
- Check your Lender’s Credibility
Various loan frauds have been reported in recent years. Most of them are related to personal loans. As a result, it is critical that you investigate the lender’s credibility. If you’re applying online, see if the lender solely has a virtual presence or if they also have physical locations. You should also see if the regulatory authorities have approved them.
- Option of Loan Foreclosure
The ideal lender is one who allows you to foreclose on the debt before it is due to be paid off. Most financial institutions allow you to prepay your loan when you pay the first 12 months’ EMI on schedule. You may also come across a lender that won’t let you foreclose on a personal loan.
In order to get a personal loan at reasonable rates, several factors must be taken into consideration. The methods outlined above will not only assist you in obtaining a better bargain but will also enable you to obtain sufficient finances without difficulty.