Top 5 Features to Look While Availing Personal Loan Schemes

In times of financial emergencies or severe cash crunch, a personal loan can be your savior as it offers quick access to funds without the need to provide any collateral. The personal loan approvals are quick and require minimum documentation compared to any other form of a loan. 

However, with multiple options available in the market, it becomes difficult for borrowers to choose the right personal loan. Therefore, while availing of a personal loan scheme, you need to be careful with the terms and conditions of the loan. The following are the top 5 features to look for while availing of personal loan schemes.

1. Personal Loan Amount and Tenure

Before applying for a personal loan, you should know your eligibility for the personal loan, and the maximum amount you can borrow. Knowing the amount you can borrow and comparing it with the amount you can repay easily is the key to securing a personal loan quickly. You can go through the personal loan eligibility criteria and use the personal loan eligibility calculator to know your eligibility and the maximum amount you can borrow against your income respectively.

Also, before finalizing the loan documents, check the loan tenure offered by the lender. A shorter repayment tenure means a higher EMI amount, which can affect your finances and the loan can become a burden.

Must Read: 5 Factors that can Decide Your Personal Loan Approval

2. Compare Interest Rate and Charges

While availing of a personal loan, always compare the total cost of the loan, not just the personal loan interest rate. The total cost of the loan includes interest cost plus processing fee, service charges, taxes, and other charges (if any).

It is always recommended to compare the Annual Percentage Rate (APR), instead of just the personal loan interest rate. APR represents the true actual cost of the loan, including all fees, and is expressed in percentage terms. It is always greater than the interest rate percentage.

Interest cost forms the major part of the repayments and you should always negotiate for the best interest rate with the lender. Before signing the agreement, make sure you read and understand the terms of the loan, including interest rate charges. Some lenders may charge single digit interest rates, but if these are applied on a monthly basis, then the annual interest rate charges would be much higher, making the loan a very expensive proposition. On the other hand, some lenders charge interest rates on an annual basis. At SMFG India Credit, our personal loan interest rates start from 11.99% per annum.

3. Penalties and Hidden Charges

Nowadays, most lenders market their loan products aggressively and promise to provide the lowest interest rate compared to others. However, before subscribing to a loan offer for any such lender, always do thorough market research on the lender and know all the costs. In certain cases, lenders keep the interest rate lower, while keeping other charges higher.

Also, know the penalties charged by the lender in case of default, late payments and for making prepayment of the loan. This will help you to plan your repayments accordingly to avoid the risk of defaults that could potentially increase your payouts and impact your credit score.

4. Documentation Process

Compared to any other category of loans, the personal loan documentation process is easiest and minimal. You need to provide PAN & Address proof, Bank statements, and Income Proof. Depending on your profile and requirement, additional documents may be requested.

You should go through all the documents required for a personal loan to ensure transparency during the process. Documents help the lender to approve the loan application upon successful evaluation of the authenticity of your information, eligibility and creditworthiness. After this step, they fix the terms and conditions of the loan. 

You should read the terms and conditions of the loan meticulously and in case of any doubt, you should raise it with the lender. Any lender who claims to provide a personal loan instantly with no documentation process is a red flag and you should avoid availing of a personal loan from any such lender. 

Must Read: 7 Situations in Which a Personal can be Your Saviour

5. Check the EMIs

EMIs or Equated Monthly Installments is the amount of money you pay every month towards repaying the personal loan. It includes both the principal and interest components of the loan. 

The maximum personal loan repayment tenure is 60 months and you get the flexibility to choose the repayment tenure yourself. It is always advised to use the personal loan EMI calculator and explore various repayment tenure and the EMI amount. It helps you to select the right tenure and EMI amount that matches your repayment capacity.

Missing even a single EMI results in a negative impact on your CIBIL credit score, impacting your future loan eligibility.

Wrap up

A personal loan is the easiest form of loan to avail of, however, you should do the necessary due diligence before applying for it. It not only prevents you from subscribing to a fraudulent personal loan scheme but also helps you to select the right personal loan scheme. 

It is important to choose the personal loan scheme that works best for you rather than going for what is popular or the personal loan scheme that the lender is trying to sell.