5 Important Factors That Will Get You The Best Personal Loan
Key Insights
- Personal loans are unsecured credit that require minimal paperwork.
- While there are traditional banks that offer personal loans, you should also consider non-banking financial institutions. They are in growing demand.
- Apply with your salary account to get the best personal loan offer.
- 12% of Indians have taken a personal loan for a mortgage.
Personal loans are financial keys to quick money in times of crisis.
They help you meet sudden financial needs with minimal paperwork and efficient monthly installments.
So you can count on this lending option whether you have to pay your child’s tuition fee, finance your wedding, or settle an unexpected medical bill.
With the multitude of financing options available, like traditional banks or non-banking financial companies, choosing the best personal loan for your needs can be challenging.
But it doesn’t necessarily have to be that way.
Let’s discuss the 5 important aspects to consider when choosing a personal loan for your needs.
The growth of personal loans in India
Personal loans are defined as unsecured loans offered by different financial institutions.
These loans are confirmed on the basis of certain criteria, such as your income level, credit history, profession, and employment history.
Personal loans are also known as multi-purpose loans as there are no user restrictions as such.
The unsecured personal loan industry stood at 23.1% in February of 2024.
What makes personal loans so great is their quick disbursement. They require minimal paperwork and offer repayment flexibility.
To expand on that a little – you can select a personal loan that meets your requirement for loan tenure; should you want it to be a short-term or long-term loan.
Another aspect of a personal loan that makes it a convenient option is that you don’t necessarily need professional experience to become eligible for it.
For example, many institutes offer personal loans to students.
Key features of a personal loan
Personal loans given by commercial banks increased from 16.2% to 30.94% between March 2014 and December 2023.
Looking at its popularity, you may wonder about the standout features of personal loans that add to its appeal.
Well, here they are.
- You can get a personal loan up to INR 40 lakh
- It requires minimal documentation
- Personal loans are both long-term and short-term.
- Monthly installments for repayment
- No collateral is required (unless you opt for a personal loan against your mutual funds)
- Quick disbursement and digital process
- Interest rates vary between 9.27% and 24% per annum
So why do Indians mostly opt for a personal loan?
67% of Indians have taken a personal loan at least once to meet their financial needs.
Now there are various reasons for that.
- As of March 2024, 12% of Indians have taken a personal loan for a mortgage.
- Personal loans for education increased by 17% from 2022-23.
- 36% of Indians have taken a personal loan to renovate their home.
- About 20% of loan applications were to finance their wedding between 2019 and 2018.
In addition to this, Indians also take personal loans for car repair, to settle medical bills, and to finance their travel.
5 factors to consider when opting for the best personal loan
77% of Indians prefer taking a personal loan from banks whereas 14% have taken a loan from non-banking financial institutions.
With so many lending options available, it can be difficult to determine which personal loan is right for you.
This is why we have created a list of 5.
Here are 5 important considerations to help you choose the best personal loan for yourself.
1. Find the best interest rates
The first aspect of a personal loan that you should consider is its interest rate.
Ideally, you want a personal loan at the lowest interest rates.
While several well-reputed banks would appeal to you, it is essential that you shop around to find the one that matches your pocket.
Banks often see if you are the right fit for them as well.
For example, if your job history is great and you have more than one income stream, they’d happily offer you a loan at lower interest rates.
If you opt for a personal loan against your mutual funds, 50Fin will approve it within 7 minutes at the interest rate of 10.5% per annum.
This makes it an ideal option for many, especially those individuals who have invested in mutual funds and don’t want to liquidate their assets to meet their short-term cash shortages.
2. Evaluate hidden costs and processing fees
Processing fees and administrative costs are often the most overlooked aspect of personal loans.
Usually, the lenders charge 1 to 2% of the total loan amount but it varies so you should look around and draw comparisons.
However, don’t just look at the processing fee as the sole reason for choosing a particular loan.
There might be a possibility that a bank charges a low processing fee but has a high interest rate.
Thus, compare both aspects before deciding.
3. Compare the loan disbursement time
You have to see how quickly the amount gets disbursed into your bank account.
This factor plays a huge role when picking a personal loan.
There are times, especially in case of a medical emergency, when you don’t have time to wait. You want the cash within a day or a few hours.
In such situations, the time of loan disbursement plays an important role.
4. Properly read the terms and conditions
It goes without saying but you must read the terms and conditions completely before agreeing to a personal loan.
Many times, borrowers are pre-occupied with the financial crises that they sign up for literally anything.
You should never do that.
No matter how pressing a need is, make sure you read the terms and conditions carefully.
If you get the chance, read it twice or more so that you know what to expect.
For example, you’d be prepared and never miss a repayment deadline.
5. Go through the available loan tenure
There are two ways to look at this.
Longer loan tenure reduces the financial burden by keeping monthly EMI affordable.
However, they increase the total interest paid over time.
Shorter loan tenure increase the financial burden for the time being but they help you save on interest.
Whatever option you choose, make sure it is aligned with your financial goals.
And it should be sustainable.
3 Ways to become eligible for the best personal loan
1. Improve your credit score
A good credit score is your ticket to getting a personal loan at lower interest rates.
The higher the credit score, the more likely you are to secure a personal loan with lower interest rates.
You can increase your credit score by:
- Paying credit card bills on time
- Don’t be lazy and clear your credit card loans as soon as possible
- Keep your credit card history clean
2. Use your salary account
Being a salaried individual will work in your favor when you apply for a personal loan.
What you can do is apply for a loan from a bank where you already hold a salary account.
This way, the lender already has access to your monthly income and understands your withdrawing pattern.
The best part? It requires minimum to no paperwork.
And yes, negotiating interest rates is easier if you already have an equation with the bank manager.
3. Look into seasonal offers
Before you start approaching banks where you don’t have any existing accounts, make sure you see what your bank offers.
- Do they have any seasonal offers?
- Are there any specific policies where account holders get a special advantage?
These are important considerations to stand out and get a better loan offer.
The bottom line
Personal loans help you secure funding to meet your financial needs.
To secure the best personal loan, you must evaluate and compare interest rates, processing fees, hidden costs, disbursement time, and loan tenure.
While personal loans, on their own, are unsecured, you can take a personal loan against your mutual funds.
This option allows you to use your mutual funds as collateral, making the loan completely secure.
And the best thing it does is it gives you quick access to cash without ending your long-term investments.
If this digital lending option sounds appealing to you, sign up at 50Fin.
50Fin gets your loan approved within 7 minutes!
Get FREE Eligibility Report
Instantly check your eligibility for Loan Against Mutual Funds
- No Minimum CIBIL Required
- 100% Digital
- 4 Working hour disbursal
Looking for Loan Against Stocks?
Recent Articles
With 67% of Indians taking a personal loan at least once in their lifetime, here’s everything you need to consider to secure the best personal loan.
From earning varied profit returns annually to taking a loan against mutual funds, here are 5 things you should know before your first mutual fund investment.
From weddings to emergencies, the issuance of types of loans has already increased by 30.94% in March 2024 in India. So how can you choose the best one?