A Borrower’s Guide to Choosing the Best Personal Loan

Updated on: 14 Dec 2021 // 24 min read // Personal Loans
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With financial contingencies becoming an inseparable part of the modern lifestyle, it is essential for you to keep a tab on your money habits. You cannot afford to have a casual approach & occasionally stride through financial planning and protect your future.

No matter how sparingly you spend your finances, your savings will not always suffice for the unprecedented life expenses. Moreover, you should not have to use your savings for all events, or it will leave you unprotected for any emergencies later on.

Though it is increasingly convenient to borrow multiple types of loans in India today; an additional credit account can massively impact your finances, at the same time.  

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Various financial institutions in India offer Personal Loans to help their customers tide over times of financial problems. To name a few, some of the popular Personal Loan offerings in the market are SBI Personal Loan, HDFC Personal Loan, ICICI Personal Loan, and Bank of India Personal Loan.

Need for Choosing the Best Personal Loan

With multiple Personal Loan offers available in the market, it is very easy for you to get confused regarding which is the Best Personal Loan. But this does not mean that you jump the gun and pick the first offer that you get. It is very important to pick the best Personal Loan offer suitable for your requirements. Otherwise, it can very quickly turn into a financial burden. 

As Personal Loans are an unsecured offering, borrowers tend to get carried away and avail the maximum amount that is available irrespective of the interest rate. This is an unwise move as you will have to bear the financial burden of interest cost for the tenor of the loan, which can go up to 60 months. Moreover, several types of charges and fees can be levied on your Personal Loan and can make it an expensive financial decision.

Quick Steps on How to choose the best Personal Loan

If you are facing a liquidity crisis and are thinking of Availing a Personal Loan, here are some important points that you must keep in mind prior selecting the Best Personal Loan for your requirements:

1. Check APR:

APR or Annual Percentage Rate is the total cost of a loan that you have to bear in one year. It includes all the other applicable charges that are levied against your Personal Loan. Due to its comprehensive nature, APR acts as a better indicator for the cost you will have to bear as compared to the rate of interest. While some financial institutions might offer you a lower interest rate but adds several other charges which make their APR higher than the lender offering a higher interest rate.

You must, therefore, seek clarification from your lender regarding the APR they charge and then compare it with offers from other lenders and make an informed decision.

2. Check the eligibility criteria:

Applying for a Personal Loan is a time-consuming process. Even if you apply online, you have to fill out the form, prepare the documents, and submit them with the lender. Many lenders also charge a fee to process your application. If you apply with multiple lenders simultaneously, you end up paying a substantial sum of money as processing fee as well as spend a lot of your time on the documentation part.

Therefore, it makes sense for you to check the eligibility criteria followed by various lenders and then apply to only one or two of the best offers where you meet the eligibility criteria without any problems.

3. Option for foreclosure:

Personal loans are often availed only in times of financial emergencies. Many times these financial gaps may not last for long.

For instance, you may have availed a Personal Loan because you were expecting some funds, and they got delayed. But after a few months, you receive the funds that you were waiting for. Now, the money is lying idle in your bank account while you serve a higher Personal Loan Interest Rate because your lender levies an exorbitant foreclosure charge.

So, in all probabilities, you must check out the option of foreclosure with your lender and opt for an option with lower foreclosure charges. Many lenders charge only a nominal amount as foreclosure while there are some who completely waive them off.

4. Avail an appropriate amount:

Do not go for the maximum amount just because you are eligible for it. You need to carefully calculate the amount you require exactly and apply for that amount only. Availing a higher amount and then keeping the money idle in your account because you do not need it is a big drain on your finances. Personal Loans come with a substantial interest cost and regular EMI payments. By opting for an appropriate amount, you can not only save on your interest cost but also keep the EMIs at a manageable level.

5. Do some research:

With the power of the internet at your fingertips, it would be criminal to select a Personal Loan without doing some research. Remember that even a slightly lower interest rate can turn into huge savings for you. So, make it a point to compare various Personal Loan offers available on the internet and then select the most suitable option by making an informed decision. There is no need to rush into making a decision because it can later lead to an impact on your credit score. Moreover, make it a point to negotiate with the lender for a better offer. You would not believe it how many times borrowers managed to get a sweet deal from the lenders by just haggling a little.

Availing a Personal Loan is a significant financial commitment but provides you with plenty of benefits as well. Just make it a point to compare various loan offers and get hold of the best deal and maximize the utility of the loan amount.

Also Read: Best Personal Loan Interest Rates for 2019 in India

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