An easy loan but conditions apply
Personal loans constitute around 17-20 per cent of the retail loan market. However, in recent times banks have tightened unsecured lending due to the prevailing financial uncertainty and increasing number of defaults in this segment.
Currently, the focus of the banks is to keep defaults to a minimum. However, a personal loan for the creditworthy individual is a boon in the hour of sudden need. Here we will explore the advantages of the personal loan and provides a checklist for taking personal loans. Why is it an unsecured loan?
A secured loan would mean that you need to pledge a house or other forms of security as collateral to obtain the loan. However, a personal loan needs no such security pledge.
An unsecured loan is easier and less time-consuming to access compared to a secured loan, which has a longer processing time. A personal loan can be accessed within a day’s notice and is easy to procure with minimal documentation. The borrowing range varies between `50,000 and `20 lakh and the repayment tenure ranges from a year to five years.
The purpose for an unsecured loan is loosely defined and is not intended for any specific use. You could obtain it for wedding expenses, cruise holidays, or for education or to pay for sudden hospitalisation expenses, to purchase a car or a consumer durable and so on. Calculating cheap personal loan offer
Personal loans come with very high interest rates ranging from 14 per cent to 30 per cent.
Compare the interest rates and get a complete picture by understanding the annualised interest rates for each offer.
Figure out the total amount of repayment that you need to shell out with all the offers before opting for the loan of your choice.
You also need to keep in mind the processing fee and other fees that will be levied when you apply for your personal loan.
Ask up front if there would be any penalty for prepayment of the loan at any point in time. More often than not loan consumers tend to pay up their loans earlier than planned to be rid of debt.
Hence, it is important to know if your personal loan offer allows part prepayments. If that is the case, you should be aware from what time frame in the loan period you can start prepaying and understand the cost that you would incur due to such prepayments in part or full.
EMI and loan tenure Evaluate all loan offers. The first condition for the selection of a loan offer is the total money outflow that the loan will cost. The second factor is the EMI. A loan offer with a lower EMI and a longer tenure may seem attractive, as it could be easy on your purse strings. However, not all such loans prove to be cost effective in the long run. Hence, first calculate the total loan cost and then try to opt for a higher EMI, which you can comfortably manage to enable a shorter loan tenure.
Keep track of your credit history Especially in the case of unsecured loans, your credit history, which is recorded by CIBIL (Credit Bureau India Limited), plays a critical role in your loan application being accepted. A good repayment track record ensures not only an instant loan approval but brownie points in the form of more attractive interest rates.
A personal loan is the best way out when you cannot access your personal savings to meet an unexpectedly huge expense. These pointers should help you on your way in getting the best deal on your personal loan. Adhil Shetty is CEO of
BankBazaar.com