Things to Know when Shopping for a Loan
Interest rates Interest rates are the reference point that most people use when comparing loans. And why not? The interest rate is going to play a big part in determining the cost of your loan. However, be careful to not fall into the trap of thinking that the rate is the only aspect to consider. Fees Fees directly impact on your cost of borrowing. They are not displayed as prominently as interest rates but you need to find out what fees apply and how much they are before proceeding with a loan. It’s better to be sceptical about attractive headline rates only to find out later that the deal involves high set-up and ongoing account-keeping fees. Loan security Most loans involve the lender using the two-wheeler that you buy as security. This means that the bank or finance company have some rights over the two-wheeler which could allow them to repossess it if you were to break your agreement and miss your loan repayments. When it comes to selling or trading in your vehicle, a secured type loan needs to be paid off in full before the sale can be finalised. If you want the flexibility of an unsecured loan, expect to pay a higher rate. Prepayment If you think that you may want to pay extra off your loan or if you’re planning to pay the loan off early with a lump sum, check in the beginning that your loan allows you to do this. If your loan does provide this flexibility, check out if there are there any costs associated with it. Prepayment penalties vary from one financial institution to another, and often, even from loan to loan. These penalties are either charged at a flat rate, or at a certain number of months’ interest. Even if the loan contract does stipulate a prepayment fee or penalty, a loan owner must first compare this amount against the overall interest they will save in terms of interest. Also, in some instances, the prepayment is made possible after a minimum stipulated period of loan ownership. To make sure they are able to capitalise on these provisions, borrowers must first carefully read their contract or talk to their borrower at length.
We chose 13 banks/non-banking financial companies (NBFCs) to study their loan products on parameters such as maximum loan, margin, processing charge, rate of interest, time taken for sanction, and repayment. We gave the highest weightage (20 points) to consumer feedback, based on which the most important variables were shortlisted.