Unsecured personal loans have lower turnaround time for loan processing and disbursal as compared to secured loan products as banks and non-banking financial companies (NBFCs) do not have to conduct the physical verification/evaluation of any securities/collaterals in case of unsecured personal loans. However, the absence of security/collateral increases the lenders’ credit risk, which leads them to follow a stringent loan evaluation process for unsecured personal loans. Here are some tips prospective applicants can follow to improve their chances of availing unsecured personal loans:
Check with your existing banks/NBFCs with whom you have deposits, loans or credit cards
Many lenders offer personal loans at preferential interest rates to their existing customers as they already possess information related to their credit profile. Hence, those seeking personal loans without security should first get in touch with their existing lenders, with whom they have deposit, loans or credit cards, to know their eligibility for availing personal loans at concessional interest rates. They can then use their existing lenders’ personal loan offers as a benchmark to compare with personal loans offered by other banks/NBFCs. Many banks/NBFCs also offer pre-approved personal loans to their select existing customers on the basis of their credit profile. Therefore, prospective applicants should first check with their existing lenders if they are eligible to avail such pre-approved offers.
Check the personal loan interest rates offered by other lenders
After checking the personal loan offers of your existing lender(s), you can visit the online financial marketplaces to check and compare personal loans offered by other banks/NBFCs. Note that the personal loan interest rates offered may vary from one lender to another depending on their loan applicants’ credit scores, monthly income, repayment history, employer’s profile, etc. Some banks/NBFCs also offer concessions in their interest rates, processing fees and/or other charges on personal loan schemes during festive seasons.
Check your EMI affordability
Lenders usually grant personal loan approval to those having their total debt obligations, including the EMI of their proposed personal loan, within 50% to 55% of their net monthly income. Hence, prospective applicants should use personal loan EMI calculators to know the optimum EMI and repayment tenure after considering their existing EMIs, unavoidable monthly expenses and monthly contribution towards crucial financial goals. Doing so will improve their chances of availing personal loans and ensure timely repayment without cutting down their monthly expenses or sacrificing their long-term financial investments. Prospective borrowers can also use Paisabazaar’s Personal Loan EMI calculator or online EMI calculators provided by various banks and NBFCs to determine the optimum EMI and loan tenure for their proposed personal loans.
Compare the processing fees levied by multiple personal loan lenders
Banks/NBFCs offering personal loans charge processing fees and/or administration/login charges to recover the cost incurred for processing loan applications. The processing fees usually go up to 4% of the total personal loan amount. However, some lenders limit their personal loan processing fees irrespective of the total loan amount while some others waive it off during festive seasons. Therefore, those seeking personal loans should compare the processing fees of multiple lenders before applying for a personal loan.
Check the part prepayment/foreclosure charges and related conditions
The RBI restricts lenders from charging prepayment/foreclosure fees on floating interest rate personal loans. However, the lenders are free to charge prepayment/foreclosure fees on those availing personal loans at fixed interest rates. Those availing fixed rate personal loans usually have to pay prepayment fees of up to 5% on the outstanding loan amount to part-prepay or foreclose their loans. Many lenders permit their borrowers to part-prepay or foreclose their personal loans only after they have paid a predetermined number of EMIs. Therefore, prospective applicants planning to part-prepay or foreclose their personal loans in future should check the prepayment-related charges and terms while comparing the personal loan offers of multiple lenders.
Avoid multiple personal loan applications within a short duration
Personal loan lenders fetch the credit reports of their loan applicants’ to determine their creditworthiness. Credit report fetches made by lenders are known as hard inquiries and these are reflected in the loan applicant’s credit report. The credit bureaus reduce the applicant’s credit score by a few points for each hard enquiry. Thus, making multiple such hard inquiries within a short duration will lead to a sharp decline in the loan applicant’s credit score. Instead, prospective applicants should visit online financial marketplaces to check and compare the personal loan offers of multiple banks/NBFCs before applying for the loan. Credit report fetches made through online financial marketplaces are considered as soft inquiries. Such enquiries have no negative impact on loan applicants’ credit scores.
Check the turnaround time for personal loan disbursal
Lenders usually disburse the pre-approved personal loans instantly or within the same day. In case of regular personal loans, the disbursal time is quicker for loans offered through online channels than for personal loans availed through offline channels. Hence, those seeking personal loans should check if the loan turnaround time is lower than the time within which they need the funds, before making the final loan application.
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