Availing a personal loan is often one of the easiest ways to arrange for funds to fulfill various personal needs. Perhaps more importantly, you need not pledge any collateral to get this loan and there is virtually no limitation on how you can use the money borrowed. But borrowing money also costs money in the form of interest payments, processing fees, documentation charges, etc. Thus being able to compare the best personal loan offers available can help you make an informed decision. Read on to know how to compare different loan offers in order to choose the most suitable personal loan offer for you.
How to Choose the Best Personal Loan?
To choose the best personal loan offer for yourself, you first need to identify the features based on which you can compare the available offers. The following are the key features that can help you identify the best among available personal loan offers:
- Low Interest Rate: Interest rate determines the amount that you have to pay in addition to the loan principal over the repayment tenure. Typically best personal loan offers have the lowest interest rates as these will cost you less for borrowing the money.
- Reducing Balance Method of Interest Calculation: Not only the quantum of interest rate, but also the method of interest calculation impacts the cost of borrowing money. Interest on personal loans is calculated using one of two methods – flat balance method or reducing balance method. Typically your interest payout is lower when the reducing balance method of interest calculation is used, if both flat rate and reducing rate offers have the same interest rate. Thus, the best personal loan offers typically use the reducing balance method of calculation.
- Low Processing Fees: Processing fees are usually charged based on the loan amount disbursed, hence the lower these are, the better for the borrower. Thus the best personal loan offers feature low (preferably Nil) processing fees including any administrative or documentation charges applicable to your loan application.
- Low Partial Prepayment and Foreclosure: An ideal personal loan offer should allow you to pay the loan amount before the designated due date either in part (partial pre-payment) or in full (foreclosure) at minimum extra cost. Both partial and complete prepayment of the loan allows you to significantly save on the interest component of the loan and lower (preferably Nil) partial pre-payment/foreclosure charges mean more money left in your pocket.
- Simple Documentation and Quick Disbursal: Personal loans are favoured by borrowers due to simple documentation and quick disbursal. So it will save you time to choose a personal loan offer that features the shortest disbursal time as well as the simplest documentation.
- Flexible Repayment Tenure: Most personal loan offers come with a flexible repayment tenure that generally varies from 12 to 60 months. It allows you to pay the EMIs as per your convenience with minimal impact on your monthly budget. In some cases you might even get additional flexibility in the form of bullet payments, which is a desirable option for applicants with seasonal cash flows.
The checklist to choose the best personal loan offer mentioned above is designed to help you compare available loan offers and in a real world scenario, rarely, if ever, you will get an offer that checks all the boxes. So in actuality you might have to settle for an option that falls short of the ideal personal loan. Even then, as long as your chosen loan offer fulfills a majority of the criteria mentioned above, you will have made an informed choice and chosen the best among the various personal loan offers available to you.
Comparison of Best Personal Loan Providers in India
While it is best if you choose the best personal loan offer based on your unique circumstances, some lenders in India are of course more popular than others. The following table summarizes the key features of some of the most popular and best personal loan providers in India:
|Name of the Lender||Loan Amount||Interest Rate (p.a.)||Repayment Tenure||Processing Fee||Prepayment Charges|
|State Bank of India (SBI)||Up to Rs. 20 lakh||9.60% onwards||6 months to 6 years||1.50% of the loan amount||3% of the loan principal prepaid|
|HDFC Bank||Up to Rs. 40 lakh||10.50% onwards||1 to 5 years||Up to 2.50% of the loan amount.||Up to 4% of loan principal prepaid|
|ICICI Bank||Up to Rs. 25 lakh||10.50% onwards||1 to 5 years||Up to 2.25% of loan amount.||5% of loan principal prepaid|
|Axis Bank||Up to Rs. 15 lakh||10.49% onwards||1 to 5 years||Up to 2% of the loan amount.||Up to 5% of loan principal prepaid|
|Citibank||Up to Rs. 30 lakh||9.99% onwards||1 to 5 years||Up to 3% of the loan amount.||Up to 4% of loan principal prepaid|
|Standard Chartered Bank||Up to Rs. 50 lakh||11.00% onwards||1 to 5 years||Up to 2.50% of the loan amount.||Up to 5% of loan principal prepaid|
|Bajaj Finserv||Up to Rs. 42 lakh||13% onwards||1 to 5 years||Up to 4.13% of the loan amount||Up to 4% of loan principal prepaid|
|Tata Capital||Up to Rs. 25 lakh||10.99% onwards||1 to 6 years||Up to 2.75% of the loan amount||Up to 4.5% of loan principal prepaid|
Documents Required for a Personal Loan
Following is the list of generally required documents to avail a personal loan from the top banks and non-banking financial companies (NBFCs) in India:
Documents Required irrespective of Applicant Type
|Proof of Identity||Aadhaar Card, PAN Card, Passport, Driving License, Voter ID, Ration Card, etc.|
|Proof of Address||Latest Utility Bill (gas, water, electricity or telephone), Leave and License Agreement, Passport, Aadhaar Card, etc.|
|Proof of Income||Salary Slips, Bank Account Statement, Bank Passbook, Copy of ITR, Audited Balance Sheet, Profit and Loss Account Statement, etc.|
|Lender Specific Forms||Personal Loan Application Form, ECS/ NACH Mandate, SI Request Form, etc.|
|Miscellaneous||Passport Size Photographs, etc.|
Documents Required for Salaried Applicants
|Proof of Job Continuity||Current Job Employment Letter, Certified Letter from Employer, Copy of Income Tax Returns, etc.|
|Miscellaneous||Employee ID Card, Form 16, etc.|
Documents Required for Self Employed Applicants
|Proof of Business Existence||Sales Deed/ Agreement, Company Registration License, Copy of Tax Registration, etc.|
|Professional Degree||Only in case of Professionals.|
|Office Address Proof||Latest Utility Bill, Lease Agreement, etc.|
|Proof of Continuity of Business||Copy of Income Tax Returns, etc.|
Types of Personal Loans
Following are the major types of personal loans on the basis of end use:
- Wedding Loan: You can avail this loan to meet the wedding related expenses, including venue booking, catering, accommodation etc.
- Home Renovation Loan: This forms the best option in case you want to upgrade the furniture in your house or meet some maintenance costs.
- Medical Loan: Personal loan also helps you to meet costs associated with a medical emergency.
- Travel Loan: This loan allows you to travel around the world with friends and family.
- Debt Consolidation Loan: This is a special type of personal loan, which allows you to pay off multiple small loans and pay a consolidated EMI for better management of debts.
- Consumer Durable Loan: Often known as shopping loan, a consumer durable loan can be used to pay for white goods and electronics such as washing machine, cell phones, laptops, etc.
- Instant Personal Loan: Also known as pre-approved personal loan, instant personal loans are offered to existing customers of the banks and NBFCs. They are characterized by minimal to no documentation and quick disbursal.
- Personal Loan Top Up: This refers to the second personal loan you take on the existing one to meet your requirement for additional funds.
Important Personal Loan Calculators
Following are some of the important personal loan calculators:
This personal loan calculator helps you to calculate the monthly payout based on the following parameters:
- Loan amount,
- Rate of Interest, and
- Loan Tenure.
Moreover, the calculator displays the total amount payable, including the breakup of total interest payout and principal.
We advise you to always calculate your loan EMIs beforehand, so that you can manage your monthly budget better.
The COVID-19 loan moratorium calculator allows you to calculate the extra interest payout, if you opt for the loan moratorium offered by Indian banks and NBFCs in view of the COVID 19 crisis and lockdown.
Personal Loan Eligibility Criteria
Following are the generally followed eligibility criteria for availing a personal loan from banks and NBFCs in India. Typically, the best personal loan offers can be considered to be the ones that have the widest eligibility criteria.
- Regular Source of Income: You should have a stable source of income, such as monthly salary, pension or business income to be eligible for a personal loan.
- Age: For most of the personal loan providers, the minimum age of the applicant should be 21 years.
- Good Credit Score: It refers to the 3-digit summary of your credit report and serves as a direct reflection of your repayment history. The score ranges between 300 to 900, and as the score increases, the chances of getting the personal loan also increases.
- Employer’s Reputation: Working with a well reputed private employer or with the central or state government improves the chances of getting a personal loan, as it is suggestive of job stability.
- Work Experience/ Longevity of Business: Most of the banks and NBFCs offer personal loans to individuals with at least 1 year of experience, if salaried or at least 2 years of experience, if self employed.
Compare Best Personal Loans in India
It is beneficial to the borrower to be able to compare various personal loan offers before settling for a specific one. However, visiting individual websites of banks and NBFCs to check the loan parameters separately and know if you are eligible can be a tedious and time consuming task. But don’t worry we have simplified it for you. You can use the free Paisabazaar Personal Loan platform to compare personal loans offers from 30+ lenders to choose the one that is best for you.
How to Apply for a Personal Loan at Paisabazaar.com?
Following is the step-by-step guide to apply for a personal loan on Paisabazaar.com:
Step 1: Visit the Paisabazaar personal loan platform and enter the desired loan amount, current profession, net monthly income, city of residence, mobile number and click “Proceed”.
Step 2: Subsequently, enter your work related details to see the list of eligible personal loan offers arranged as per the chances of approval.
Step 3: Select the appropriate loan offer or contact Paisabazaar for assistance.
Step 4: Get instant conditional e-approval. Subsequently, a representative of your chosen lender will contact you to confirm your loan application details and complete other formalities such as document collection.
Benefits of a Personal Loan
The following are the benefits that make a personal loan one of the best borrowing options for personal purposes:
- End-use Flexibility: You can use a personal loan for almost any purpose, such as wedding, home renovation, medical emergency, etc.
- Collateral Free/ Unsecured: You generally don’t need to pledge any collateral or security to avail a personal loan, unlike a car loan or home loan.
- Minimal Documentation: As personal loan is unsecured in nature, minimal documentation is required. You only need to submit proves of identity, residence and income in most of the cases.
- Quick Disbursal: Personal loan amount is generally disbursed within a few days of application and approval.
- Flexible Repayment Tenure: You can generally repay the loan up to 5 years, as per your convenience.
Frequently Asked Questions (FAQs)
Q1. What is a personal loan?
Ans. A personal loan is a form of unsecured credit (loan) that individuals can avail from banks and NBFCs to meet a variety of personal needs.
Q2. How can I get a personal loan?
Ans. You can easily get a personal loan online by filling out a form at Paisabazaar personal loan platform. Alternately you can directly approach a lender such as a bank or NBFC to know their personal loan offers.
Q3. Should I choose lower EMI and long repayment tenure or vice versa?
Ans. A lower EMI over a longer repayment period means that your total interest payout will be higher. However, it also results in a smaller monthly payout that can be helpful to maintain stability of your monthly budget. Similarly, a shorter tenure will result in higher EMI payouts but lower overall interest cost for the loan. Thus, you should select an EMI amount which maintains the balance between your budget and total interest outgo.
Q4. How can I get a low interest rate on my personal loan?
Ans. You can avail a low interest rate on your personal loan by following the below tips:
- Maintain a high credit score
- Aim for a low credit utilization ratio
- Ensure a healthy mix of credit
- Maintain a balance between ongoing EMIs and income, so that your fixed income to obligation ratio is low
- Avoid multiple loan applications
Q5.What is credit score? How does it impact personal loans?
Ans. Credit score is a 3-digit number calculated on the basis of your repayment history. You can check your credit score for free at Paisabazaar platform. If you have a high credit score (such as 750 or higher) you will have better chance of availing a new personal loan and you may also be eligible for lower interest rate personal loans.
Q6. How is interest calculated as per the reducing balance method?
Ans. Personal loan interest is calculated on the outstanding loan amount only and not the total amount initially borrowed as per the reducing balance method of interest calculation. This method allows you to save greatly on interest component.
Q7. What is an EMI?
Ans. EMI stands for Equated Monthly Installment. It refers to the fixed amount that a borrower has to pay on a specific date of every month to repay the loan.
Q8. How can I calculate my personal loan EMIs?
Ans. Manual calculation of personal loan EMIs can be tricky and erroneous, thus use Paisabazaar personal loan EMI calculator to know your loan EMIs instantly and accurately.
Q9. What is the meaning of personal loan foreclosure?
Ans. When you completely pay off an outstanding loan before the designated due date, it is called foreclosure.
Q10. Why should I consider foreclosing my personal loan?
Ans. You should consider foreclosing your personal loan because it can help you save on the interest component of your loan and also frees you from the burden of an ongoing loan ahead of time.