Key considerations that one should keep in mind and evaluate when choosing which personal loan to opt for are:
- Interest rates: One should consider the rate of interest various banks are charging on the amount borrowed. The interest rates will have an impact on the Equated Monthly Instalments (EMI) that you will need to pay towards repaying the loan and the associated interest rates. The easiest way to compare these loans would be to compare the EMI’s that you need to pay for a certain amount for a given tenure across banks.
- Other charges: There are various other charges like bank charges, service charges, processing fee, etc, which are an equally important factors to be kept in mind and compared.
- Tenure: The tenure for which a bank is lending you the money for can also be a consideration. If a bank is offering loans for only lower tenures, the EMIs might be higher than what you can pay. On the other hand, the lesser the tenure, the lower is the interest amount that you will be paying towards servicing the loan.
- Turnaround time: The time taken by banks to process your loan. One should consider the urgency of the situation, evaluate various options given by different banks and then choose from where to borrow.
Pre-payment fee: Some loans have a penalty towards early prepayment of a loan. This is an important consideration since one may want to prepay a loan if your cash position becomes favourable and surplus money is available. Since the cost of personal loans are generally higher than other secured loans or rates available on fixed deposits etc., one should generally prepay these loans as soon as one is able. This is especially important if the residual period for the loan is long, say over 1-2 years.