Looking for a personal loan? Here are key things to consider

A personal loan is a type of unsecured credit that caters to the personal needs of an individual. Borrowers who use the mobile banking facility of the bank where they maintain their salary account can check personal loan offers provided to them. The bank may offer them a hassle-free pre-approved personal loan with the least requirement of documents.

Borrowers who are looking for a lender other than where they manage their salary account should evaluate the product that suits their financial needs.

The first thing to check here is the amount and when is the loan needed.

After that, according to Zafar Imam, CEO, FinShell, it is recommended to check and compare the interest rate of different lenders as rates may vary from lender to lender for the same profile.

“Finally before going ahead with the loan, borrowers should check the processing fees and pre-closure charges. Processing fees may vary from bank to bank. Similarly, while few lenders levy no charges on part or full prepayment, many of them do charge a hefty amount on foreclosure,” Imam conveys.

In case of emergency funds and advance salary, Raghuvir Gakhar, CEO, CashBean (P.C.Financial Services Pvt Ltd) believes that banks are not the ideal place and they usually have a longer processing time.

“Online lending agencies, on the other hand, have a TAT of minutes sometimes. For a larger amount though or for a longer period loan, it's best to go the bank route where the rate of interest would be better in case of such a need,” Gakhar tells.

As per Imam, most of the lenders decide the eligibility based on the income, repayment capacity, current monthly obligations, and credit score. A better score means better rates on borrowings.

A lot of companies also have their internal assessment systems. Many of the fintech may not require any of the income documents and may decide the eligibility basis alternate data viz. by reading bank statement, social media contact details, etc.

According to Imam, the maximum amount of loan depends on the risk appetite and internal policy of the lenders. While banks may offer as high as Rs 1- 40 lakh, the fintech company may not go beyond Rs 1-5 lakh.

As per Gakhar, personal loans are almost always unsecured unlike other types of loans. Personal loans also require much less processing and documentation than other types of loans.

Adding to it, Imam tells that the biggest advantage personal loan offers is that the usage of funds is not restricted.

"The loan obtained can be used for any purpose viz. vacations, wedding, medical expenses etc. While other loans clearly define the usages of the money viz. home loan, education loan, car loan, two-wheeler loan, a gold loan can be used only to buy or use of acquiring that product," Imam stresses.