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