With so many lending institutions in the fray, it can be confusing to choose the right lender. However, no matter whom you finally choose as your lender, knowing a few things before applying for the loan will help you secure a good deal. After all, every paisa saved is a step towards earning a rupee!
Things to Keep in Mind While Applying for Loan
Part-Prepayment and Foreclosure Charges
It is essential to check for loan part-payment and foreclosure charges. Certain loans such as home loan do not attract these charges, but banks do levy them on personal or education loans. Further, most banks do not allow part-prepayment in the case of personal loans.
Read the Section on Fees and Charges Carefully
Reading the entire loan document thoroughly before signing on the dotted line is the ideal thing to do. However, as many of us find the technical language difficult and confusing, we tend to skip this step. I suggest you at least read the section on fees and charges carefully. You should know how much the lending institution is charging you and for what.
Loan Approval Process
The loan approval process depends on the lender, the nature of the loan, interest rate, loan tenure. Don’t consider just one criterion (say approval time or interest rate) when choosing a lender, take a holistic view. Do your research and compare all the options before deciding. It’s your money, make it count!
Factor in Future Liabilities
When applying for a loan, it’s smart to factor in future liabilities that are likely to come your way and decide the loan amount accordingly. You may be able to afford the EMI in your current situation but you never know when things change. Be prepared for life’s unforeseen incidents.
Now that you are aware of what to look out for when applying for a loan, it’s time to consider who is better — a private bank or a public one.
Convenience and effort
Private banks have a wide network of agents and executives who provide round-the-clock and door-to-door service.
On taking a loan from a public bank, you have to do all the legwork. As a result, you lose precious time waiting in the banks’ queues
The loan processing fee is usually higher because of the convenience provided by the banks.
Public banks do not have a robust Direct Selling Agent (DSA) model yet, and therefore have lower processing fees.
Private banks have a very fast turnaround time when it comes to loan approvals.
Public banks take more time in approving loans than private banks as the former have a very stringent due diligence process.
In most banks, you cannot prepay your loan for the first 6-12 months of the loan tenure.
A public sector banks do not apply such restrictions.
Private banks are very active in creating mobile-based apps and leveraging social media sites to reach out to customers. For example, ICICI’s Pockets and Axis Bank’s personal loan app.
Although public banks are catching up with private banks on several fronts, they have yet to leverage digital media.
Both public and private banks score equally but — it’s all about finding the lending institution that suits your needs.
By Naveen Kukreja, MD PaisaBazaar.com
First published in MoneyControl