Getting the best personal loan is so much more than just zeroing down on the best bank for personal loan or comparing among the best personal loan interest rates and offers. Here are some important things to consider during your personal loan hunt.

What To Keep in Mind for the Best Personal Loan?

Interest rate As elaborated earlier (“Personal Loan: One Loan for Many Needs”), personal loan rates depend on a host of factors such as income, outstanding loans, and credit score.

Term Longer the personal loan term, lower the EMI, but higher the overall interest payment. 

Existing relationship An existing relationship with a bank or financial institution like a savings account, can ease the journey of personal loan as well as come with a lower interest rate. 

Apart from such factors, all loans come with preliminary charges. 

What Are Other Personal Loan Charges? 

Processing charge Providers typically charge up to 3% of loan amount as a non-refundable processing charge.

EMI bounce or Missed EMI penalty Typically, a penalty is charged on the EMI amount missed. It keeps accumulating as the number and period of missed payments rise. 

Loan cancellation fee It is the charge for cancelling a loan after the loan is disbursed.

Prepayment charges If you prepay the loan exceedingly early, for instance, in the first year, you might need to pay a charge for breaching your expected payment timelines.

Change in repayment mode fee The fee is charged for a change in repayment mode like a different bank account.

Other administrative charges These charges pertain to documentation such as No Objection Certificate (NOC) on loan closure, issue of statements, legal fees, and stamp duty charges. 

How Do You Improve Chances of Getting a Personal Loan?

Here are some tips for improving the chances of getting a personal loan. 

Check your eligibility and credit score As suggested earlier (“Personal Loan: One Loan for Many Needs”), check your loan eligibility before loan application. Find out your credit score by downloading it. If the credit score needs improvement, fully repay loans, resume interrupted loan repayments, and reduce utilisation of credit limits such as in credit cards. 

Ensure stability of employment Staying in the same job for significant periods like three years or more, bolsters evidence of loan repayment capacity.

Avoid multiple loan applications Restrict your personal loan applications to 1-2 institutions. Multiple applications could indicate financial distress. Rejection of loan applications lowers credit score. 

Seek a longer loan term Seeking an optimal tenure means a lower EMI and lesser impact on your home budget, besides bolstering evidence of your repayment capacity.

How Personal Loan Compares with Alternatives During your personal loan hunt, it is inevitable to consider other loans like Loan against Public Provident Fund (PPF). However, a closer look will reveal its limitations. 

How personal loan scores over Loan against PPF

A tax-saving, 15-year investment, PPF allows a loan only between the third and sixth year and with significant limitations.

Restrictive conditions The loan amount can be only 25% of the account balance two years prior to the loan. Thus, for a loan in the fourth year, the balance at the end of second year is the reference. Unless you invest the maximum permissible amount of Rs 1.5 lakh annually, you are unlikely to get a sizeable loan. You can typically get a personal loan of up to Rs 25 lakh. 

True, you are charged only 1% p.a. more than the prevailing PPF interest rate and have a maximum term of 3 years, with repayment allowed as a lump sum or through two or more instalments. Yet, loan against PPF is likely to work for you for only small loan amounts. 

To sum it up, you need to compare personal loan offers on a range of aspects. This helps you select one that you can truly personalise for your needs.