10 basic rules to get the best personal loan offer

At some point, one needs a personal loan or an instant personal loan, depending on the immediacy of the requirement.

If the need is pressing, an instant personal loan becomes necessary. In situations where the expense is anticipated, a personal loan serves the purpose.

Rakesh Kaul, CEO of Clix Capital, says, “Since there are so many lenders in the market – banks, NBFCs and fintechs – it is imperative to remember some cardinal criteria to get the best deal. Therefore, potential borrowers should check interest rates, plus various terms and conditions, by visiting the sites of different lenders. Prior research is also essential to avoid applying to multiple lenders where one does not meet the eligibility standards but triggers difficult investigations, which can damage a borrower’s credit rating and impact the chances of later taking out a personal loan on better terms.

Here are the top ten rules:

1. Determine the interest rate

One of the most crucial points, this can have an impact on the EMI (equated monthly payments) and the duration of the loan. Use a personal loan EMI calculator to decipher the most suitable options.

2. Choose the lender carefully
While banks, NBFCs (non-bank financial companies) and fintech entities all offer personal loans, terms and conditions differ between traditional lenders and digital natives. Although banks and NBFCs may claim to offer lower interest rates, certain conditions may not be suitable or a borrower may not qualify due to specific standards. So check all these things beforehand. Also, another lender may have a more suitable offer. Therefore, check the lowest interest rates as well as other fees and conditions through the websites of loan aggregators.

3. Maintain a strong credit rating
Personal loans are a form of unsecured credit. Therefore, before approving a loan, lenders will check the applicant’s credit score, which indicates the borrower’s creditworthiness. Since credit scores vary between 300 and 900, a score above 750 is good. A lower score results in either the loan being declined or being approved at a higher interest rate. A healthy score can be maintained by always paying EMIs and credit card bills on time.

4. Avoid advanced NDEs
Some lenders ask for one or two EMIs as an advance from borrowers when disbursing the loan. An EMI advance effectively raises the interest rate and borrowers will end up paying more than what was mentioned. Therefore, avoid early EMIs and choose a personal loan application or a lender that only requires the payment of regular installments.

5. Opt for a short mandate
Sometimes borrowers might be tempted by a longer term due to low EMIs. But this will result in a higher repayment over the entire term since the outstanding amount bears interest each month. If the EMI is affordable, short terms are a good idea to control the total amount. Again, a personal loan calculator will help you find the best options.

6. Guarantee timely refunds
Paying EMIs on time is necessary to ensure that the borrower’s credit rating is not affected and that they do not pay a late payment penalty. Additionally, an unfavorable remark in the credit score could hamper the chances of another loan being approved at some point.

7. Only approach a credible lender
As mentioned earlier, approaching different lenders simultaneously can result in multiple difficult investigations against the borrower. This gives the impression that the individual desperately needs credit. As a result, lenders are cautious about granting a loan to such a person. So check the eligibility criteria of the various lenders and only then approach a lender where the standards are met.

8. Check for hidden fees
Find out if there are any processing fees, late payment penalties, and other hidden/built-in charges that can inflate the total spend on any loan. If so, budget for those expenses or figure out how to avoid them.

9. Find out about foreclosure fees
Sometimes borrowers are able to prepay a loan. But if the foreclosure or prepayment fees are high, it’s not worth it. One should find the relevant details in advance to avoid disappointment or select a lender with no prepayment charges or only nominal charges.

10. Beware of 0% EMI schemes
Some lenders might entice borrowers with 0% EMI programs in conjunction with consumer durables or lifestyle retailers. Here, the high application fees and processing fees are not revealed to buyers or only mentioned at the last moment. Thus, the borrower pays interest unknowingly.

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