How to choose the perfect personal loan? 5 key factors to keep in mind | Mint

Personal loans are one of the most popular financial options for individuals who require money. These funds can be required for any reason, whether it is medical treatment, renovation of the house, planning for future education or a holiday.

Now choosing the best personal loan is challenging and confusing with so many options, randomly available information etc. The most crucial element to consider when choosing a personal loan is a reputable loan distributor, interest rate terms, repayment options along with other associated factors. Even more important is the clear understanding of the kind of agreement you are entering into while availing the loan.

Key things to consider while choosing a personal loan:

Interest rates

Interest rate has a very important role in the overall cost of your loan. Comparison of interest rates across different lenders is required to discover the lowest feasible rate. The reduction in interest rate can create massive savings on the loan term along with ease in repayments later on.

Personal loan interest rates charged by different banks in India majorly vary between about 10.49% and 15%. For complete details on the same reach out to the respective website of the bank or financial institution. You should also speak to the customer support division of the bank if you want more clarity on any related issues.

Loan tenure

Your personal loan EMI (Equated Monthly Installment) and total interest payable over a long period are determined by the loan tenure. Shorter tenures typically have more EMIs but lower total interest payable, and longer tenures have fewer EMIs but may end up paying more total interest. Choose the tenure that is appropriate for your financial situation and repayment capacity. That is why it is important to clearly understand your loan structure and repayment terms.

Processing fees and other charges

Certain lenders also charge additional fees and processing fees, which contribute to the overall borrowing cost. Sometimes these charges can be hidden and can have a huge impact on your overall loan amount. Always keep these fees in close check before making your decision. Choose lenders that offer transparent levels of charge and minimal additional fee to pay. If in doubt, never hesitate in reaching out to a certified financial planner.

Eligibility criteria

Different lenders have different eligibility parameters based on the credit score, income, education, past credit history and employment. Compare your financial situation with the above parameters to decide if you are eligible for the loan you wish to apply for. Read the terms and conditions of the loan document carefully. 

Do note, you must be clear about the terms and conditions of the loan before applying for it. This is crucial so that you can avoid any additional charges, hidden charges or surprises later on.

Lender reputation

One should investigate the credit record of the lender to have no bad experience of lending. Read the customer reviews and ensure the lender is licensed by the relevant authorities. If possible try to reach out to actual past customers of your respective lender before applying for a loan with them.

One should be certain of getting good interest rates as well as good terms by a reasonable lender. Hence, ultimately bearing these five most crucial parameters in mind: interest rate, repayment term, processing fees, suitability criteria, and the credibility of the lender, you can make an informed decision while selecting a personal loan that best suits your needs and aspirations.

(Note: Raising a loan comes with its own risks. So, due caution is advised)