Loans - Tips on getting the best deal in a Personal Loan

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Your borrowing limit:

To start with, it's important to get a good estimate of how much money you can borrow. The loan amount is usually in the range of 2-3 times the annual household income of the borrower. Knowing your borrowing power saves you time.

Your repayment capacity:

The loan amount granted to you also depends upon your repayment capacity. The loan is repayable in the form of Equated Monthly Installments (EMI). The EMI typically should not exceed 50% of your monthly household income. You can also opt for clubbing your spouse's income along with your income if you want to enhance the loan amount that is sanctioned to you.

Interest rates:

The interest rates vary, depending on the tenure of the loan and the amount of the loan. The interest rates offered by one institution can be more than that of other institutions for a particular tenure, and can be less for a different tenure. A loan should fit your pocket and the term you wish to take it for. You should get quotes of all the finance companies and map them according to your requirements.

Administrative and processing charges:

Banks and Non Banking Finance Companies (NBFCs) charge certain processing fees for moving the case. Besides the processing fees, some institutions also charge administrative fees for getting the legal appraisal and address verification done. These charges are one-time charges collected by the institution.

Check out the Prepayment charges:

Other charges like prepayment charges and commitment fees increase the effective cost. The prepayment charges are levied if you are prepaying the loan amount before the schedule, decided at the time of sanctioning the loan. It is levied because it disturbs the financial planning of the institution. So you can appreciate the fact that the interest costs are not the only costs, which the borrower has to bear. These charges go on to increase the real cost to the borrower above the stated rate of interest.

Compare loan schemes:

Compare loan schemes of different finance companies on parameters such as interest rates, pre-payment clause, and upfront margin to be paid, Maximum loan amount, eligibility, etc. Check - What the monthly loan payment is and what interest rate that translates into, the duration of the loan and whether or not the scheme fit with your requirements.

Finalise your loan company:

After weighing the pros and cons of all these factors, you can zero in on the institution from which you want the loan from. You will be asked to furnish personal documents to establish your age, employment details, salary slip, copy of income tax returns, etc.

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