Over the years, personal loans have gained immense significance due to their unsecured nature and no end-use restrictions. This segment witnessed a 3.8x growth by volume between FY17 and FY21.
Despite being a popular financing option, obtaining the best personal loan with reasonable terms can be difficult. This is mainly because several factors collectively impact a loan’s affordability.
So, before customers decide to apply for an online personal loan, they should consider the following approaches:
1. Compare Various Lenders
Several NBFCs offer personal loans with varying interest rates. In addition, the lender’s borrower assessment and risk appetite may also vary. The chances of loan approval and terms and conditions may differ from lender to lender.
Therefore, borrowers must formulate a thorough comparison between different lenders to reach a conclusion.
One of the best ways to compare lenders is utilizing a loan EMI calculator. This indispensable tool allows borrowers in assessing loan affordability.
For illustration, suppose someone plans to borrow Rs. 1 lakh as a personal loan for a tenor of 24 months. On the one hand, a lender offers this sum at an interest rate of 15%. This will result in an EMI of Rs. 4,849. On the other hand, another lender offers an interest rate of 13%. Here, the EMI will drop to Rs.4,754.
Although the difference between these amounts may seem insignificant, they paint a broader picture of the entire loan repayment tenor.
However, the interest rate should not be the sole comparison factor while applying for a personal loan. One must also evaluate other loan features, including additional fees and charges, pre-payment or part-prepayment charges, and more.
2. Maintain a Strong Credit Score
A credit score or CIBIL score is a 3-digit numerical representation of an individual’s creditworthiness. It evaluates one’s credit profile by considering numerous factors, such as existing loans, repayment capacity, and more.
Since personal loans are unsecured financing, lenders tend to become over-cautious while evaluating borrowers’ creditworthiness. Typically, most financial institutions prefer approving loan applications of individuals featuring a healthy credit score of 750+.
In this regard, a poor credit score can have severe implications for personal borrowing. This will lead to increased interest rates and certain unfavourable terms and conditions. However, there are certain things one can do to improve their credit score. They are:
- Monitor the credit card balance
- Timely payment of bills
- Avoid taking too many loans at the same time
- Maintaining a healthy credit mix
- Fixing late payments
More importantly, transforming a bad CIBIL score into a good one won’t happen overnight. One must remember that obtaining affordable borrowing requires strenuous efforts and research.
3. Look For Offers or Deals
Before applying for a personal loan, borrowers must ascertain if the lender provides any offers or deals. Keeping a watch on all kinds of offers can make personal borrowing even more affordable. For instance, certain lenders also extend various festive offers when one tries to borrow money online.
Additionally, various leading NBFCs like Bajaj Finserv extend pre-approved offers for existing customers. These offers are designed to simplify and streamline the personal loan application procedure. Interestingly, they are available across varied financial products, including personal loans and business loans. You can check your pre-approved offer within seconds by entering your name and contact details.
4. Read the Terms And Conditions
Reading the fine print is crucial before one proceeds to online Personal loans apply. The terms and conditions contain all essential details regarding the loan, including processing fees, penalty charges, pre-payment or part-prepayment charges, and more.
This fine print can aid individuals in assessing the overall affordability of a loan and knowing whether it is viable for them.
Prospective borrowers must always choose a lender known to consider their financial obligations and factor in a specific risk profile to offer flexible repayment options.
Individuals can utilise a personal loan for multiple purposes. For example, the sum can be used towards a child’s education, finance a marriage or professional obligations. However, to serve an affordable borrowing experience, knowing when it is a good idea to avail a personal loan is crucial.
By maintaining a healthy credit score, comparing different lenders, assessing loan offers and reading the fine print, one can find the best personal loan online. This will also help them enjoy hassle-free borrowing after they apply for an online personal loan.