Personal Loans: Steps to Choose the Best Personal Loan

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Last Updated 23rd Oct 2016

Do you wish to handpick the personal loan scheme that suits your requirements perfectly? Want to get a detailed view of interest rates, loan amount eligibility, processing fees, pre-payment, foreclosure provisions and charges? If yes, here is an interesting read for you:-

Borrower’s Checklist List before Making an Application for Personal Loans

1. Bridge the Gap Between your EMI & Monthly Income

  • Before applying for any personal loan, make sure that you are capable of paying the EMI in a timely manner. Thus, apply for an amount which can be easily serviced by your net monthly income
  • Check your maximum eligibility as per each bank and apply for a loan amount that is easily manageable and doesn't affect your financial health.
  • Ensure that the total EMI on all your loans is not more than 50 - 60 percent of your monthly income
  • If you already taken many loans, try and consolidate them into a single loan
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2. Credit History Matters

  • Your credit score and past repayment track is something which every bank checks before sanctioning any loan. It is a fact that banks totally avoid providing unsecured personal loans to people with a poor credit history
  • In order to attain a good credit score, pay your EMI on time
  • Do not apply for fresh personal loans if you have a CIBIL score less than 700 or have defaulted on loans in the recent past
  • If you are not sure about your credit rating, please check the same from CIBIL before applying for a personal loan

3. Your Professional Backdrop

  • Banks prefer providing loan to people who work with well recognized and reputed companies. Also, they track your payment behaviour before approving the loan application
  • Banks avoid customers who stay in certain areas that have reported higher than average default rates
  • Check the comparison of personal loan interest rates applicable for your company before applying for loan
  • If you are a married couple and need money for family requirements, it may be beneficial to apply in the name of the spouse who works in a company with a bigger setup. This way, you will be saving money for the family as opposed to paying higher interest to the bank

4. The Purpose of Loan Is Significant Factor for Loan Approval

  • Banks usually provide personal loans for purposes like home renovation, travel, wedding, meeting emergency expenses and more. Make sure you are applying for the similar tenacities mentioned above
  • Select a loan tenure that suits your purpose and comes at lower interest rates
  • Do not apply for personal loan for uses that are not eligible, as this will lead to rejection of your application and affect your CIBIL score adversely

5. Upfront Charges, Prepayment and Foreclosure

  • Check the processing fee payable on each personal loan scheme you are evaluating.
  • Evaluate whether you may need to prepay the loan either partially or fully
  • Carefully check whether partial prepayment and foreclosure is available with the scheme chosen by you.
  • In case prepayment is allowed, check the applicable charges and restrictions

6. Life Insurance with Personal Loan

  • Check the insurance premium payable with the loan. This may range from 1% to 5% of the loan amount depending on type of cover, amount, age of borrower and other factors as determined by the insurance provider
  • By availing funding of the premium through loan amount, not only will you have to pay back the premium but also interest on the premium amount at same interest rate as the personal loan
  • Share the insurance details with your family and keep the insurance papers with the loan documents.
  • In case of an unfortunate incident, some policies may some amount to the family in addition to paying back the outstanding loan to the bank
So, now you know the various eligibility factors and comparison parameters for applying for a personal loan in an informed manner.
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