These days, a lot of people in India use personal loans for things like unexpected bills, putting all their debts together, or buying big stuff. But with so many choices, it can be hard to know which loan is best. This blog is here to help by giving you important info and tips to pick the right loan for you.
A personal loan gives you a lump sum of money, which you repay in fixed monthly installments over a specific period. Unlike credit cards, personal loans have fixed interest rates and clear repayment terms, making it easier to manage significant expenses.
You can use this loan for various purposes like paying medical bills, funding a wedding, or renovating your home. To get a personal loan, you need to apply to a bank or lender, provide necessary documents like identification proof and income statements, and if approved, you'll receive the money in your bank account.
When you're looking at personal loans, the interest rate is super important because it decides how much the loan will cost you. Interest rates can stay the same for the whole loan (fixed) or change based on what's happening in the market (variable).
Tip: Always check out the Annual Percentage Rate (APR), it is a number that tells you how much it costs to borrow money over a year, including both the interest rate and any fees because it shows you the interest rate and any extra fees. This helps you know exactly how much the loan will cost you.
Loan terms are how long you get to repay the loan. They can be short or long, ranging from a few months to several years. If you have more time, you pay smaller amounts each month but end up paying more interest overall. If you have less time, you pay more each month but end up paying less interest overall.
Keep an eye out for any extra charges linked to the loan, like origination fees, penalties for paying early, or fees for paying late. These fees can make the loan cost a lot more than you expected.
Example: An origination fee of 1% on a ₹10 lakh loan would cost you ₹10,000 upfront.
Before choosing a lender, check what others say about them by reading reviews and checking their ratings on websites. A good lender will clearly explain their terms and provide excellent service.
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A personal loan can be secure or unsecured. Secured means loans are backed by collateral, like your house or car, which the lender can take if you can't repay the loan. Unsecured loans don't require collateral, but they often have higher interest rates because they're riskier for the lender.
Check the below is detailed table for better understanding:
| Aspect | Secured Loans | Unsecured Loans |
|---|---|---|
| Collateral | Require collateral, like a car or house. | Do not require collateral. |
| Interest Rates | Generally have lower interest rates. | Typically have higher interest rates. |
| Risk for Borrower | Risk losing the asset if defaulting on payments. | Less risky for borrowers, as there's no collateral at stake. |
2.Fixed vs. Variable Rates
Personal loans are often fixed or variable rate. You can choose depends on your requirements
| Aspect | Fixed Rate Loans | Variable Rate Loans |
|---|---|---|
| Interest Rate | Interest rate remains constant throughout the loan term. | Interest rate can change over time. |
| Predictability | Provides predictable monthly payments. | Payments can vary, potentially lower or higher. |
Debt consolidation loans combine multiple debts into a single loan, making it easier to manage payments. You borrow enough money to pay off all your existing debts, leaving you with one monthly payment to make. This can simplify your finances and potentially lower your overall interest rate, helping you pay off your debt faster.
Instead of making three separate payments each month, you decide to take out a debt consolidation loan for ₹100,000 at 10.50% interest. With this loan, you can pay off all your existing debts in one go. Now, you only have to make one monthly payment towards the debt consolidation loan, simplifying your finances and potentially saving you money on interest.
A personal line of credit is a flexible loan that allows you to borrow up to a certain limit and pay interest only on the amount borrowed. It works similarly to a credit card.
For example: Let's say you're approved for a personal line of credit with a limit of ₹50,000. You haven't borrowed any money yet, so you're not paying any interest.
One month, you have an unexpected expense of ₹20,000. You decide to use your personal line of credit to cover it. Now, you owe ₹20,000 on your line of credit, and you start paying interest on that amount.
A few months later, you've paid back ₹10,000 of what you borrowed. Now, you have ₹10,000 available to borrow again if you need it. You only pay interest on the remaining ₹10,000 that you still owe.
You continue to use your line of credit as needed, borrowing and repaying, and you only pay interest on the amount you borrow.
Figure out why you're getting the loan and how much you need. This will help you find the right loan for you.
Your credit score affects the loan terms you get. A higher score means better conditions. If yours is low, think about boosting it before you apply.
Make sure to read the loan contract carefully. Understand all the terms, especially about fees, penalties, and how to repay.
Compare the offer below:
| Financial Corporation | Interest Rate | Max Tenure | Max Loan Amount |
|---|---|---|---|
| HDFC | 10.75%- 24% p.a | Up to 5 years | 40 lakhs |
| UCO | 9.85% p.a | 60 months | 10 lakhs |
| ICICI | 10.80% p.a | 12 months to 72 months | 50 lakhs |
| SBI | 11.15% p.a | 60-84 months | 30 lakhs |
| IDFC | 10.99% p.a | 5 years | 10 lakhs |
| Bajaj Finserv | 11%-38% p.a | 8 years | 40 lakhs |
| TATA Capital | 10.99%- 35% p.a | 6 years | 35 lakhs |
| Bank of Baroda | 11.40%- 18.75% | 7 years | 20 lakhs |
| AXIS | 10.99% p.a | 84 months | 40 lakhs |
To pick the right personal loan, you need to think about things like how much interest you'll pay, how long you'll have to pay it back, any extra fees, and if the lender is trustworthy. If you understand these things and look at different loans, you can find one that works for you and helps you reach your goals.
We EazyBankLoan understand the process of procuring a loan can be stressful. That is why we take care of your home Personal Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
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A secured loan requires collateral, such as a car or house, while an unsecured loan does not. Secured loans usually have lower interest rates but higher risk for the borrower.
A higher credit (750 or above) score typically qualifies you for better interest rates and terms, while a lower score may result in higher rates and less favorable terms.
Yes, but lenders may charge a prepayment penalty. It's important to check the loan terms before committing.
Contact your lender immediately to discuss your options. Some lenders may offer hardship programs or temporary payment adjustments.
Improve your credit score, reduce your debt-to-income ratio, and ensure you have a stable income. Providing accurate and complete information on your application also helps.
The different types of personal loans available include secured loans, unsecured loans, fixed-rate loans, variable-rate loans, and lines of credit.
The loan term is the duration over which you repay the loan, and a longer term typically means lower monthly payments but higher total interest costs.
You typically need identification proof, income statements, and bank statements, and the application process involves filling out a form, submitting documents, and undergoing a credit check.
Your credit score impacts loan approval, with higher scores increasing chances, and improving it involves timely bill payments and reducing debt.
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