A Brief History
In 2019, it is easier than ever to avail of a Personal Loan today; however, one may face a problem of plenty as various banks, NBFCs, and alternate lenders offer customised unsecured loans to cater to diversified customer needs. It is thus imperative for every applicant to compare different Personal Loan offers before choosing one.
While the basic characteristics of lending products are similar amongst various lenders, certain aspects can vary greatly. For instance, you can avail of a Personal Loan from HDFC for up to Rs. 40 Lakhs, whereas the maximum amount available as Indiabulls Personal Loan is Rs. 15 Lakhs.
Gathering information for comparison
Before starting to compare the various Personal Loan offers, you need to collect as much information as you can. Only when you have compared essential aspects of different loan offers, can you make an informed decision. Here are the various sources from where you can get this information:
- Official website: All financial institutions have their websites where they share every information that their customers can require. After you have identified the suitable lenders, visit their official websites, and note down the essential information. This might take some effort on your part but will indeed help you gather the most relevant information.
- Online marketplaces: Alternatively, you can visit online finance marketplaces that list different products offered by various financial institutions. You can easily find out detailed information about different Personal Loan offerings in one place.
- Offline sources: There are various other ways you can collect information about Personal Loans. You can make a branch visit, use customer care helpline, refer magazine articles, or newspaper reports to gather the required information.
How to Compare Personal Loans?
The process of comparing different Personal Loans might seem straightforward, but it is, in fact, a little complex. You need to have a proper strategy in place to execute this task. Here are some useful tips to help you compare Personal Loans:
- A reliable source of information: – When you tend to collect information from other platforms, there are chances that the information might be biased. Some loan agents or platforms receive commissions on promoting specific Personal Loans. So, make sure you visit the official websites.
- Collect offers from different financial institutions: Some of the most important aspects of Personal Loans are the maximum amount available, interest rate, repayment tenor, processing charges, etc. As these aspects differ greatly across lenders, you should get offers from at least 3-4 different lenders; otherwise, you might miss out on the best offer. You must compare offers from public sector banks, private sector banks, NBFCs, and online finance companies before reaching a financial decision.
- Do not sign multiple application forms: If you plan to collect information on Personal Loans through branch visit or agency inquiry, do not sign any application form. By signing an application form, you give the lender permission to check your Credit Score. This reflects as a hard inquiry in your Credit Report, showcasing desperation for credit and therefore reducing your Credit Score. So, do not sign any application forms unless you have made a final decision.
- Compare similar interest rate structures: When you will be comparing Personal Loan offers from different lenders, you need to ensure that they are comparable. Interest rate structure, repayment tenor, the maximum amount available should be similar. After all, you cannot compare a Personal Loan with a fixed interest rate structure, for Personal Loans have a variable interest rate structure. For instance, HDFC Personal Loan Interest Rates are available with fixed-rate structure as well as variable rate structure. So, you must be careful while comparing.
- Always compare total cost: Most borrowers make a mistake of comparing only the Personal Loan interest rates. But it is not the right approach. You need to compare the annual cost of the loan, i.e., APR (Annual Percentage Rate). APR is a more comprehensive measure as it considers the interest rate as well as other associated costs. There are many instances where one lender charges a lower interest rate with higher associated costs.
- Pay attention to the terms and conditions: No matter how long is the loan agreement, do not sign it without reading the fine prints. You never know if the lender has inserted some clauses that are not suitable for you. So, always take time while reading the loan agreement and feel free to raise questions when you have any doubts.
Which parameters should you compare?
Now that you know how to collect the information about Personal Loans and precautions to be observed while comparing, here are the essential parameters you must compare:
- The maximum amount available, bet it as reputed offer as HDFC Personal Loan, should be according to your requirements.
- The repayment tenor being offered must be according to your capability to serve the particular EMI amount.
- Interest rate should be as low as possible. For, it will decide your total interest cost as well as EMI you have to serve.
- Processing charges should be as low as possible because they will not be refunded under any circumstances.
- Option for part/ full pre-payment should be available so that you can pay off the loan as soon as possible. The prepayment penalty should be as low as possible.
- Processing time should be as little as possible to help you avail of the facility in a quick time and manage your liability.
Availing a Personal Loan is a significant financial decision and should be taken only after you have undertaken a detailed comparison between multiple offers.
Question for students (and subscribers): What do you think about personal loans? Please let us know in the comments section below this article.
Your readership is much appreciated!
For more information, please see…
Tyson, Eric. Personal Finance For Dummies. For Dummies, 2018.