Personal loans are one of the most expensive categories of loans you can avail of. These are unsecured loans that can be easily availed of and banks are eager to offer them. In fact, you might have received a few calls offering instant personal loan because you have been a loyal customer to your bank. However, if you opt for a personal loan, expect to pay an interest rate of anywhere between 9% and 20% per annum. The reason is simple: an unsecured loan means that the lender will not ask for a collateral. This is only feasible for the lender if they have a sense of what your credit history is like and whether you have the capability to repay the loan. But that isn’t enough of a safety net. Hence the high interest rate.
Given that they are expensive, but easily available, personal loans seem like a good option to fund an emergency expense, if you don’t have a contingency fund in place, or if the fund was depleted for some reason. Many are seeking out solutions like personal loans for any financial crisis. But according to banking intermediaries, banks are tightening lending norms, which could make it difficult for borrowers to get new loans.
While it’s not advisable to take a personal loan unless you have an emergency or immediate requirement for funds that can’t be serviced otherwise, if you do want to opt for one, it’s wise to analyse which bank can offer you the lowest interest rates.
Other factors to monitor while availing a personal loan -
Loan eligibility
Personal loan eligibility depends on the borrower's job profile, monthly income, employer’s profile, credit score, etc. Most banks and NBFCs do not require loan applicants to have any existing relationship with them. However, personal loans are for borrowers or those maintaining salary accounts or pension accounts with the bank. Moreover, applicants need to have a good track record of loan repayments prior borrowed loans.
Loan amount
Loan amounts for personal loans usually range from Rs 50,000 to Rs 20 lakh. As Covid-19 personal loans have been designed to meet the temporary liquidity mismatch due to the lockdown, the loan amount is on the lower side, Rs 25,000 and Rs 5 lakh.
Interest rate & processing fee
The interest rate for regular personal loans is 9-24% per annum, based on the lender and your credit profile. Processing fee can go up to 3% of the loan amount.
Loan tenure
Personal loan tenure is between one and five years, with some lenders offering a maximum tenure of five years.
Options for others
Consumers sharing no banking or lending relationship with such banks can consider instant digital personal loans offered by other banks. Many banks have also started offering instant digital personal loans to a select group of their existing customers.
Credit cardholders can consider pre-approved loans against credit cards to meet their financial shortfalls. Banks offer these loans to their existing cardholders with a good repayment track record. While these loans are also dispersed within the same day of making an application, their interest rates are a bit higher than a regular personal loan.
