Factors to Consider Before Choosing a Personal Loan Lender in India
People have dreams, which spur them to work hard. These aspirations cover important and emotionally satisfying life objectives, whether it be having a fairy-tale wedding, purchasing a home to call it your own, quitting your day job in favor of self-employment, or beginning a new life in a foreign city. When we go out to make our dreams a reality, we encounter a number of difficulties. These difficulties could take the shape of a lack of resources, lofty objectives, a lack of focus, or financial limitations. The other challenges necessitate some creative problem-solving on our part, but fortunately, the final one can be overcome with a straightforward solution—a personal loan.
A personal loan can be used for a variety of purposes, including funding significant purchases, consolidating debt, covering unexpected costs, and many more. A personal loan can often be repaid in equal monthly installments (EMI) over a period of two to five years, though this time frame is adjustable to fit your needs. Although there are other possibilities for financing, personal loans are frequently the most practical choice because they are less expensive than alternatives like credit cards and disbursement is quicker and handier than a loan secured by the property. Because personal loans are not secured by any type of collateral, lending organizations carefully review the profiles of their clients based on factors including income, credit score, age, and salary information.
Here are the top five factors to take into consideration before choosing a personal loan, which may be utilized for nearly any necessity.
How to Start an eCommerce Business in India?
- Loan Size and Term: The most important thing to know before applying for a personal loan is how much you need to borrow. The trick will be figuring out how much you need and comparing it to how much you can pay back quickly. The EMI requirement can be calculated using several tenure options and the required loan amount in order to come up with a budget-friendly proposal. Longer loan terms result in reduced EMIs, but higher interest costs as well.
- Interest rate and other fees: After deciding on the loan amount, you must consider the interest rate, which is the single most important aspect in determining the entire cost of your loan. This interest rate is determined by a number of variables, including your income, creditworthiness, place of employment, etc. Your loan costs might be dramatically affected by a variation in interest rates of simply 0.5 percentage points. A lower interest rate may, with careful planning, result in cheaper EMIs and, as a result, a shorter loan term. In addition, the lending institution may impose additional fees on the borrower, such as processing costs or penalties for late payments or default.
- Credit Score: Your credit score is a key factor in determining your eligibility, as was already established. A credit score, also known as a CIBIL score, is a three-digit number that ranges from 300 to 900 and represents how creditworthy a borrower is. In terms of available income, outstanding debt, borrowing patterns, and payback history, it reflects the borrower’s overall financial health. The greater your chances are of getting a personal loan, the higher your CIBIL score. Additionally, your CIBIL score has a big impact on the sanctioned loan amount and the loan terms. An excellent CIBIL score of above 750 is required to apply for a personal loan with good terms.
- Charges for the Pre-/Part-Payment Facility: There may be times when you require a personal loan right away yet believe you will soon have the money to repay it. First off, you can save a lot of money on interest if the pre-payment can be made in full quite early on in the loan term. Personal loans typically include a lock-in period after which the entire balance may be prepaid for a small fee.
As an example, the EMI for a personal loan of Rs. 2 lakh that is taken out at a 15% interest rate for a tenure of five years is Rs. 4,758. So, at the conclusion of the first year, you would have paid 28,056 in interest and 29,040 toward the principal. You will avoid paying 57,423 in interest if you choose to prepay the entire balance due at this time. Do not forget to ask the lender about prepayment/foreclosure fees.
You can make a half payment if you don’t have enough money to make the full prepayment. Part payments are effective since they lower the loan’s principal, which lowers the interest rate. This in turn can lower your EMI. If you choose a personal loan for Rs. 3 lakh with a duration of five years and an interest rate of 15%, you would have to pay an additional interest of Rs. 1,28,219 for the loan. You may save roughly 30% of your interest share if you made a little part payment of $50,000 after the sixth EMI.
Income in relation to EMI: It should come as no surprise that you will be required to make monthly EMI payments in order to repay the borrowed funds. Therefore, you should evaluate your cash flow, expenses, and debts before applying for a personal loan. Without placing undue strain on your finances, your monthly income should be sufficient to cover both your EMI and routine expenses. Simply put, your entire disposable income shouldn’t be greater than 40% of your EMI responsibilities.
Where to look for a personal loan?
Make sure you proceed with a dependable financial partner as soon as you realise you need a personal loan. There may be loan options available with remarkably cheap interest rates. However, if you read the fine print, you’ll discover that there are other unmentioned fees, such as a processing fee or a significant pre-payment penalty, which apply if you try to pay back the loan early.
In most cases, a personal loan can be repaid in equal monthly instalments (EMI) over a two- to five-year period. Lending institutions carefully examine the profiles of their clients based on variables like income, credit score, age, and salary information because personal loans are not secured by any kind of collateral.