Are you thinking about taking out a personal loan to finance a major expense or consolidate high-interest debt? Before signing on the dotted line, it’s essential to follow a checklist before applying for loans. Taking the time to understand the key aspects of a personal loan can save you from financial stress down the road.
In this article, we’ll walk you through three important factors for personal loans to consider when applying for a personal loan:
- Loan terms and interest rates
- Your credit score and financial health
- Lender reputation and customer service
Let’s dive in and explore each of these points in more detail.
1. Scrutinising Loan Terms and Interest Rates
When comparing personal loan offers, the first thing to check is the interest rate. Even a seemingly small difference in rates can have a big impact on your total repayment amount over time. For instance, on a ₹5 lakh loan over 5 years, the difference between a 12% and 14% interest rate is ₹30,200 in extra interest paid!
Here’s a quick comparison of how different interest rates affect your EMIs and total interest paid on a ₹5 lakh loan over 5 years:
| Interest Rate | Monthly EMI | Total Interest Paid |
| 12% | ₹11,122 | ₹1,67,320 |
| 13% | ₹11,346 | ₹1,80,760 |
| 14% | ₹11,571 | ₹1,94,260 |
Besides the interest rate, it’s important to check loan terms and conditions. A longer tenure means lower EMIs but higher total interest paid. Aim to strike a balance between an affordable EMI and minimising overall interest.
Lastly, watch out for hidden charges like processing fees, prepayment penalties, and late payment fees. These can sneakily add to your borrowing cost. Ideally, opt for a lender with transparent terms and minimal additional charges.
When considering these aspects, one of the mistakes to avoid in personal loans is overlooking these hidden fees. Failing to factor in processing fees or penalties can lead to much higher costs than initially anticipated.
2. Evaluating Your Credit Score and Financial Health
Your credit score is a key determinant of your personal loan eligibility and interest rate offers. A CIBIL score of 750+ is generally considered good and can help you secure the most favourable loan terms. You can check your credit score for free on the Airtel Thanks app.
If your score needs improvement, work on it before applying. Simple steps like paying credit card bills and EMIs on time, maintaining low credit utilisation, and correcting any errors in your credit report can boost your score over time.
Besides your credit score, lenders also evaluate your debt-to-income ratio and income stability. As a thumb rule, your monthly debt payments (including the new loan EMI) should not exceed 40-50% of your monthly income. Having a stable income source and providing documentation like salary slips and bank statements can further strengthen your loan application.
One of the mistakes to avoid in personal loans is applying for a loan with a poor credit score, which can lead to higher interest rates or even rejection of the application.
3. Assessing Lender Reputation and Customer Service
Not all lenders are created equal. Before selecting one, research the lender’s market reputation, read customer reviews, and browse their website for transparency on loan terms and conditions to check and processes.
Established players like Airtel Finance offer attractive interest rates starting from 12.75% and an easy online application process. They also provide helpful tools like an eligibility calculator and a clear list of required documents to simplify your loan journey.
Responsive customer service is another important factor for personal loans, especially if you’re a first-time borrower. Check if the lender offers multiple support channels like phone, email, and chat. Having a dedicated relationship manager or quick turnaround times can make a big difference in your overall experience.
A common mistake to avoid in personal loans is choosing a lender with poor customer service, which can lead to frustrating experiences during the loan process and throughout the repayment period.
Summing Up
Taking out a personal loan is a significant financial commitment. By carefully checking the loan terms and conditions, your credit health, and the lender’s reputation, you can confidently select an offer that fits your needs and repayment capacity.
Remember, a little homework today can save you from a lot of stress tomorrow. List down your key requirements, compare multiple offers, and don’t hesitate to ask questions.
If you’re looking for a hassle-free borrowing experience, check out personal loans offered by Airtel Finance. With competitive interest rates, easy eligibility, and an intuitive digital interface, Airtel Finance can be your trusted partner in fulfilling your financial goals. Get started on your personal loan journey today!
FAQs
- What factors should I consider when comparing personal loan offers?
When comparing personal loan offers, key factors to consider are the interest rate, processing fees, loan tenure, prepayment charges, and the lender’s reputation. Aim for the lowest interest rate and fees, and a tenure that balances affordable EMIs with a reasonable total interest outgo.
- How does my credit score impact my personal loan eligibility and interest rate?
Your credit score is a crucial determinant of your personal loan eligibility and interest rate offers. A score of 750+ is considered good and can help you secure the best loan terms. Lower scores may result in higher interest rates or even rejection of your application.
- What documents are typically required for a personal loan application?
Personal loan documents usually include identity proof (PAN card, Aadhar card, etc.), address proof (utility bills, rent agreement, etc.), income proof (salary slips, bank statements, ITR, etc.), and sometimes a photograph. Check your lender’s website for a specific list of documents needed.
- How much can I borrow with a personal loan, and for what tenure?
Personal loan amounts can range from ₹10,000 to ₹25 lakhs or more, depending on the lender’s offering and your eligibility. Loan tenures are typically 1 to 5 years. Use an EMI calculator to find the right loan amount and tenure based on your monthly repayment capacity.
- What should I do if I have difficulty repaying my personal loan EMIs?
If you’re struggling to repay your personal loan, contact your lender immediately. They may offer options like restructuring the loan, temporarily reducing EMIs, or extending the tenure. Avoid missing payments, as it can hurt your credit score. Proactively communicating with your lender can help find a mutually workable solution.
