How to Choose the Best Personal Loan

A personal loan can be one of the most convenient ways to obtain funds for various personal purposes. You don’t need to pledge collateral to obtain a personal loan. There are virtually no restrictions on how the money can be used. Borrowing money can also cost money in interest payments, processing costs, and documentation fees. It is possible to compare different personal loan offers and make informed decisions. Learn how to compare loan offers to find the best personal loan offer.

Before you can choose the best personal loan offer, you must first identify the features that you will be comparing. These are the top features that will help you choose the best personal loan offer.

  • Interest Rate: The interest rate is the cost of the loan principal and the amount you will have to repay it over the term. The best personal loans offer the lowest interest rates because they will be less expensive to borrow the money.
  • Reducing Balance Method for Interest Calculation: The cost of borrowing money is affected by more than just the interest rate. Personal loans can be calculated using either the flat balance or reducing balance methods. If both the flat rate and the reducing rate offer the same interest rate, your interest payout will be lower. The reducing balance method is the most effective way to calculate personal loans.
  • Low processing fees: The amount of the loan disbursed is usually the basis for processing fees. Therefore, the less these are, the better. The best personal loans offer low processing fees, preferably negligible. This includes any documentation or administrative charges that may be applicable to your loan application.
  • Foreclosure and Prepayment with a Low Partial: A personal loan deal should allow you to repay the loan amount in any combination (partial prepayment or full foreclosure) with minimal additional cost. Both partial and complete prepayment of the loan allows you to significantly save on the interest component of the loan and lower (preferably Nil) partial pre-payment/foreclosure charges mean more money left in your pocket.
  • Easy Documentation and Quick Disbursal: Borrowers love personal loans because they are easy to apply for and disburse quickly. It will save you time and cut down on paperwork if you choose a personal loan that has the fastest disbursal.
  • Flexible Repayment Tenure: Personal loans typically offer flexible repayment terms that range from 12 to 60 monthly. You can pay the EMIs at your own pace and with little impact on your monthly budget. You might be eligible for bullet payments in some cases. This is an attractive option for applicants who have seasonal cash flows.

This checklist will help you to compare loan offers. In a real-world scenario, it is rare to find a loan that meets all your criteria. In reality, you may have to accept a less than ideal personal loan. You will still be able to make an informed decision and choose the best personal loan offer for you, provided that it meets the majority of the criteria.

Comparison of the Best Personal Loan Providers In India

It is best to choose the best personal loan offer for you based on your individual circumstances. However, there are some Indian lenders that are more popular than others. Below is a table that summarizes some of the best personal loan providers India has to offer.

Name of the Lender Maximum Loan Amount Interest Rate (p.a. Repayment Tenure Processing Fee Prepayment charges
State Bank of India (SBI) Maximum Rs. Up to Rs. 9.60% and up 6 months to 6 Years 1.50% of the loan amount Prepaid 3% of principal loan amount
HDFC Bank As high as Rs. 40 lakh Up to Rs. 10.50% and up 1- 5 Years Maximum 2.50% of the loan amount Prepaid up to 4% of the loan principal
ICICI Bank 25 lakh. 25 lakh. 10.50% and up 1-5 years Maximum of 2.25% on loan amount Prepaid 5% of the loan principal
Axis Bank As high as Rs. 15 lakh 11% and up 1-5 years Maximum 2% of the loan amount Prepaid up to 5% of the loan principal
Citi Bank As high as Rs. Up to Rs. 9.99% and up 1-5 years Maximum 3% of the loan amount Prepaid up to 4% of the loan principal
Standard Chartered Bank 50 lakh. 50 lakh 11.0% and up 1-5 years Maximum 2.50% of the loan amount Prepaid up to 5% of the loan principal
Bajaj Finserv 25 lakh. 25 lakh. 11.49 % and up 1-5 years Maximum 4.13% of the total loan amount Prepaid up to 4% of the loan principal
Tata Capital 25 lakh. 25 lakh. 10.99% and up 1- 6 Years Maximum of 2.75% on the loan amount Prepaid up to 4.5% of the loan principal

Documents required for a personal loan

The following is a list of documents that are required to obtain a personal loan from top banks or non-banking financial institutions (NBFCs), India.

No matter what type of applicant you are, all documents required
Documentation proving identity Aadhaar Card, PAN Card, Passport, Driving License, Voter ID, Ration Card, etc.
Documentation attesting to the address Current Utility Bill (gas water, electricity, or telephone), Leave and License Agreements, Passports, Aadhaar Cards, etc.
Evidence of income Salary Slips. Bank Account Statement. Bank Passbook. Copy of ITR. Audited Balance Sheet. Profit and Loss Account Statement.
Lender-Specific Forms Personal Loan Application Form, ECS/ NACH Mandate, SI Request Form, etc.
Miscellaneous Passport Size Photographs, etc.

Salaried:

Documents required for Salaried Applicants
Evidence of job continuity Current Job Employment Letter, Certified Letter from Employer, Copy Income Tax Returns, etc.
Miscellaneous Employee ID Card, Form 16, etc.

You can be self-employed

Documents required for self-employed applicants
Evidence of Existence Sales Deed/ Agreement; Company Registration License; Copy of Tax Registration
Proffessional Degree Only for professionals.
Evidence of Office Address Recent Utility Bill, Lease Agreement, etc.
Evidence of the Continuity and Efficacy of Business Copy of Income Tax Returns etc.

Different types of personal loans

These are the main types of personal loans based on end use.

  • Get a Wedding Loan: This loan can be used to cover the costs of your wedding, such as venue booking, catering and accommodation.
  • Home Renovation Loan: This is the best choice if you are looking to update your furniture or reduce maintenance costs.
  • Medical Loan: A personal loan can also be used to cover medical expenses.
  • Travel loan: You can travel the world with your family and friends by taking out a loan.
  • Consolidation of Debt Loans: This personal loan is a unique type that allows you to repay multiple smaller loans at once and pay a consolidated EMI. It helps with debt management.
  • Consumer Durable Loan: A consumer durable loan is also known as a shopping loan. It can be used for the purchase of white goods and electronic items such as laptops, phones, tablets, and washing machines.
  • Get an instant personal loan: Pre-approved personal loans, also known as instant personal loans, are available to customers of banks and NBFCs. These loans are quick and easy to disburse with minimal documentation.
  • Personal Loan Top-Up: This is the second personal loan that you take on your existing one to provide additional funds.

The following parameters are used to calculate the monthly payment for a personal loan calculator:

  • The loan amount
  • Rates of interest
  • Loan Tenure.

The calculator also displays the total amount due, as well as the breakdown of principal and total interest payout.

Criteria for Personal Loan Eligibility

These are the most common eligibility criteria to be eligible for a personal loan from Indian banks and NBFCs. The best personal loans are those that meet the most eligibility criteria.

  • Regular source of income: To be eligible for a personal loans, you must have steady income such as a monthly salary, pension, or business income.
  • Age: The minimum age for most personal loan providers is 21.
  • Excellent Credit Score: This is a 3-digit summary of credit that serves as an indication of your repayment history. It can range from 300 to 900 and the more you have, the better your chances of getting a personal loan.
  • Reputation of the Employer: A good reputation with a private employer or the central or state governments will increase your chances of getting a personal loans. This is because it indicates job stability.
  • Working Experience / Longevity in Business: Personal loans are offered by most banks and NBFCs to those with at least one year of experience if they are salaried, or two years if they are self-employed.

Compare the Best Personal Loans in India

Before deciding on a personal loan, it is advantageous for the borrower to compare different offers. It can be tedious and time-consuming to visit individual websites of banks or NBFCs in order to compare loan terms and determine if you are eligible. We have made it easy for you.

How to apply for a personal loan

Here’s the step-by-step guide for applying for a personal loan at Paisabazaar.com.

Step 1: Visit personal loan platform. Enter the amount you are looking for, your current profession, and your net monthly income. Click “Proceed” to proceed.

Step 2: Enter your details and you will be able to view the eligible personal loans that are available based on your chances of approval.

Step 4: Instant conditional e-approval A representative from your lender will then contact you to confirm the details of your loan application and complete any other formalities, such as document collection.

A personal loan has many benefits

These are some of the reasons personal loans are one of the most popular borrowing options for personal use:

  • End-of-use flexibility: A personal loan can be used for nearly any purpose such as a wedding or home renovation.
  • Collateral Free/ Unsecured: Personal loans don’t require you to pledge collateral or security, unlike car loans or home loans.
  • Minimal documentation: Personal loans are unsecured and require minimal documentation. In most cases, you will only need to provide proofs of your identity, income, and residence.
  • Quick Disbursal: The personal loan amount is usually disbursed within a few business days after approval and application.
  • Flexible Repayment Tenure: The loan can be repaid in as little as 5 years depending on your schedule.

Frequently Asked Questions (FAQs).

Q2. How do I obtain a personal loan?

Ans. Ans. You can also contact a bank or NBFC directly to inquire about their personal loan offers.

Q3. Should I choose a lower EMI and a longer repayment term or vice versa

Ans. It also means a lower monthly payout, which can help you maintain stability in your monthly budget. A shorter term will also result in lower EMI payouts and a lower overall interest cost. You should choose an EMI amount that balances your budget and your total interest expense.

Q4. How do I get a personal loan with a low interest rate?

Ans. These tips will help you get a personal loan at a lower interest rate.

  • Keep a high credit rating.
  • Try to keep your credit utilization rate low.
  • You should have a healthy balance of credit.
  • Keep your income and ongoing EMIs in balance so that you have a low fixed income to obligation ratio.
  • Do not submit multiple loans applications.

Q5.What is a credit score? What does credit score have to do with personal loans?

Ans. We allow you to check your credit score free of charge. A high credit score, such as 750 or more, will increase your chances of getting a personal loan. You may also be eligible to receive personal loans with lower interest rates.

Q6. How is interest calculated as per the reducing balance method?

Ans. This allows you to make significant savings on the interest component.

Q7. What is an EMI?

Ans. EMI stands for Equated Monthly Installation. It is the monthly installment that a borrower must pay to repay the loan.

Q8. How can I calculate my personal loan EMIs?

Ans. Manual calculation of personal loan EMIs can be tricky and erroneous, thus use personal loan EMI calculator to know your loan EMIs instantly and accurately.

Q9. What does personal loan foreclosure mean?

Ans. It is when you pay off a loan completely before the due date.

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