Personal Loan Tips

Now a days with easy availability of personal loans from banks as well as from Non Banking Financial Companies (NBFC) people face a problem of plenty and find difficulty in choosing the right lender to minimise the cost and optimise the benefits. Here are some tips to do that.

  1. First and most important tip is to check your credit score on any of the credit information bureau like CIBIL before you apply for any loan. Your credit score is the starting point for the lender to help to decide whether you can safely service the personal loan being applied for. Generally a CIBIL credit score of 750 and more is acceptable to the lenders as most of the loans have been given to person with this minimum qualifying credit score. So unless you have the minimum qualifying credit score, it does not make sense for you apply for personal loan as the application is most likely be rejected.
  2. After you have checked your credit score and before you apply for personal loan, you should do a thorough research about the various personal loans available in the market. There are various websites like where you can get details of various providers of personal loans. While doing this research you need to ascertain who is providing the personal loan for the tenure for which you want as the maximum tenure of personal loan varies amongst various lenders. You also need to understand the processing charges levied by various lenders for processing your loan application. You should also do a thorough research on the various terms and conditions attached with prepayment charges because this is the major cost after the interest cost.
  3. As personal loans carry very high interest rates, you should properly work out your personal loan requirement.. The requirement of personal loan should be arrived at with detailed working rather than with just guess work. A good estimate of requirement of personal loan should neither be on higher side nor on lower side. This exercise will help you minimise the cost of the interest which you pay on personal loan as well as help you avoid payment of prepayment charges which are levied in case you prepay your personal loan before its tenure. Some of the lenders allow you to prepay your personal loan only after you have paid certain instalments. There are other lenders who let you part prepay your personal loan every year upto certain percentage of the amount outstanding. So in case you are not sure of the tenure within which you would be able to pay the loan, it would be good idea to select lenders who offer you such flexibility in prepayment of the loan.
  4. Generally lenders do not allow you to have two personal loans at the same time. So in case you are already servicing a personal loan, the probability of your getting another is low. So ensure that there is a gap of at least six month between two application for personal loans.
  5. The eligibility for personal loan is dependent on your ability to pay the certain every month. So in case you are not able to get the personal loan within the tenure initially opted by you and since the lenders do not allow any joint borrower except in case of wedding loan, the only option available to you to enhance your eligibility is to opt for the longer tenure of personal loan.
  6. Since your loan amount eligibility is also dependent on the amount of any existing liability being serviced, it is advisable to pay up all your credit card outstanding in case you have opted for carry forward of the credit card outstanding due as allowed by the credit card issuer.
  7. Deciding about the tenure of personal loan is the most difficult part of the entire process because in case you opt for the longer tenure you end up paying either interest for the longer period for extended period else you will have to bear the prepayment penalty. In case you opt for shorter tenure resulting in higher Equated Monthly Instalment (EMI) it may cause stress on your cash resources. This may some times may affect your credit score and credit history as well. So do a thorough calculations and deliberations on the amount which you can comfortably service month after month.
  8. As the banks generally charge processing fee for processing your loan application, which adds to your cost, you will be able to reduce this cost if you have good credit score as well as have existing relationship with the lender. The processing fee is negotiable and can even be waived fully if you have strong credential and negotiating skills.
  9. It is preferably to avail the credit facility from your existing bank as it reduces the processing time of the application. Check from your existing banker whether they have any personal loan product for you and also check whether you are a preferred customer of the bank.
  10. Since interest is the most important cost component of the personal loan, it is very important for you to understand the interest rate mechanism. Whether it is fixed rate or floating rate. It is important to understand how the interest is charged on personal loan being offerred. In case of flat rate the interest is charged on the entire amount of loan throughout the tenure of the loan without giving credit for the EMIs paid. You should opt for the loan where the interest is charged is on reducing balance of the loan instead of the original amount of the loan.
  11. While filling up the application form, it is very important that you fill up all the details correctly. Be honest with whatever details you submit to the lender. Do not fabricate any documents or details. This may cost you dearly, sometimes in jail, in case the misinformation happens to be material one. Please fill up the entire form yourself instead of signing on the dotted lines.
  12. This the most important tip. As it happen in marketing. Do not rely on the promises verbally made to you by the representative. Insist for written confirmation for all the benefits or concessions offered by you.
  13. Work out your overall cost taking into account the rate of interest as well as the processing charges which you may have to pay before you zero in on any particular lender.
  14. Last but not the least. Always read the application form thoroughly. If the fine prints are not fully legible use a magnifying glass if need be. In case you do not understand the fine print, take help of person who can help you understand the same.