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Things to Consider in A Personal Loan other than Interest Rate

Things to Consider in A Personal Loan other than Interest Rate

  • By Saral Credit
  • September 18, 2022

Are you planning to get a personal loan?

Most of you consider PL interest rate as the prime considerable factor. However, the Rate of Interest isn’t the only factor you must consider when getting a personal loan for any emergency.

So, what else should you be considering?

Loan Amount:

It is one of those factors that affect the EMI. The loan amount is the principal that you opted to get from the lender/bank. With a high loan amount, you need to pay a higher EMI and verse versa. You must note that qualifying for the desired loan amount depends on multiple factors; some of which are listed below.

  • Credit Score
  • Credit History
  • Debt-to-Income Ratio
  • Employment History
  • Down Payment
  • Collateral
  • Loan Type & Loan Term

Two individuals with the same loan requirement can qualify for different loan amounts, depending upon the factors mentioned above. Moreover, the cumulative factors are also different from one bank to another.

Repayment Period:

Repayment tenure is one of the factors that most personal loan borrowers always underestimate. The repayment period is the timeframe you choose to repay the loan. With longer repayment tenure, you get a lower EMI amount.

The repayment schedule matters as it decides the EMI amount and the interest you will pay until the last EMI. With a longer repayment, your interest amount will be higher than a short repayment period. With a repayment period, you can easily calculate the total amount you pay. Simply multiply the tenure with the EMI.

All banks provide a repayment schedule that includes your total EMI amount which will help you know the interest and principal component of your total loan.

Below are the tips for choosing the right repayment period.

  • Choose a shorter repayment period as it will reduce the interest amount
  • Prefer paying a lumpsum amount alongside regular EMI to reduce the repayment period

Above all, you should choose a  personal loan repayment tenure where you can pay the EMI without fail.

Additional Reading: Quick Personal Loan

Easy Monthly Installments:

After the personal loan disbursal you can need to pay a specific amount every month. This is better known as the Easy Monthly Installment aka EMI. The EMI amount needs to be repaid in full. The personal loan EMI calculator helps you to know the factors affecting personal loan EMI.

  • Interest Rate: A higher interest rate will increase your EMI amount.
  • Tenure: With longer repayment tenure, you can decrease the EMI amount.
  • Prepayment: Additional deposit (lumpsum amount) will always help you lower your EMI amount.
  • Down Payment: From total asset value, the EMI is calculated after deducting the down payment. In short, the EMI is only calculated using your loan amount.
  • Change of Lender: The EMI may differ after you change the lender.

Pre-Payment Options:

Yes, pre-payment is highly recommended if you want to close the personal loan before its tenure ends. E.g., Pre-payment can help you close the personal loan within 2 years even if your repayment tenure is 5 years. 

You must know that pre-payment of a lump sum amount towards your personal loan completely differs from fore-closure. Under foreclosure, you make full payment of the outstanding principal amount, which results in closing your loan account. 

You must check the limit of pre-payment in a financial year and what are the charges associated with them. As per RBI, the banks are not liable to add charges towards pre-payment. However, the most personal loan comes with a lock-in period of one year. It means you can't make any pre-payment within the first year of the loan.

Lender's Credibility:

The authenticity and credibility of the lender matter a lot when you are applying for a big personal loan. Numerous lenders across the nation can disburse you the desired personal loan. Some of them even qualify you for a higher loan amount. But what matters is their credibility. The lender you choose must have a good reputation across the nation. A dependable bank/lender will always help you from day one till loan account closure.

Research matters to find out the credibility of any lender. You can also ask your connections for their experience, which will have a strong factor in selecting the right bank/lender to get a personal loan.

Time Required for Loan Disbursal:

Nowadays, most borrowers qualify for pre-approved personal loans. It means the borrower doesn't need to wait and submit documents for loan disbursal. Instead, banks already do so on behalf of the borrower. If you agree to get the loan, they will disburse the amount within a few hours.

However, standard personal loans also have a quick disbursal process. You don't need to wait for weeks! Personal loans are highly used for emergencies. It means you require the amount as soon as possible. That's where a personal loan comes into play. The maximum time needed for a personal loan disbursal is 24 hours. 

Personal Loan processing times have reduced with digital documentation submission and quick credit checks though there's still a long way to go for really instant disbursals.

Level of Application Process:

There is a big difference between pre-approved personal loans and standard personal loans. The application process differs a lot, and so is its disbursal time. Getting a personal loan involves multiple steps, including an online application, document submission, credit checks, and final loan disbursal. Offline application mode is also available, but it has today become highly inconvenient, where the online process takes a few seconds to apply for the loan and submit the required documents. You must check the application process and ensure it is simple to proceed.

Good Customer Service:

This isn't a direct influencing factor, but good customer service is what matters in the long run. From day one until your personal loan account closure, you might require assistance from the lender/bank. Here, customer service will play a significant role. Good customer service will build long-term relationships with the borrowers, and that's the success mantra for many banks across the nation. 

Your Salary:

Yes, your salary is a strong point you shouldn't miss out on when applying for a personal loan. Your salary, aka monthly income, will give you insight into how much you can pay as an EMI. Moreover, it also helps you calculate the debt-to-income ratio.

You must consider these points other than interest rates when applying for a personal loan.

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