In 2024, securing a personal loan in India is more convenient than ever, with digital lending platforms making the process fast and paperless. However, getting the best loan deal with favorable terms still requires careful planning and awareness. Personal loans are popular because they are unsecured, meaning you don’t have to pledge any assets. They can be used for various purposes, from funding a wedding or home renovation to handling medical emergencies or debt consolidation.
Here are the top 12 tips that can help you secure the best personal loan in India in 2024.
1. Check Your CIBIL Score Before Applying
Your CIBIL score plays a crucial role in determining your eligibility for a personal loan in India. The CIBIL score is a three-digit number that reflects your creditworthiness. It’s important to check your score before applying for any loan. Most Indian lenders require a score of 750 or above to approve personal loan applications. A lower score can either result in rejection or a higher interest rate. You can check your score for free once a year through the CIBIL website or other platforms.
If your score is low, focus on improving it by paying off any outstanding dues, reducing your credit utilization ratio, and maintaining a healthy repayment history. Sometimes there may be errors in your credit report—be sure to resolve them with the credit bureau before applying for a loan. A higher score not only boosts your chances of getting a loan but also helps in negotiating better interest rates.
2. Compare Lenders and Interest Rates
Not all lenders in India offer the same interest rates and loan terms. It’s crucial to compare different options, including public and private sector banks, Non-Banking Financial Companies (NBFCs), and digital lending platforms. Each lender has its own interest rate, processing fee, and other charges. Sometimes, a lender with a slightly higher interest rate might offer lower fees, making the overall cost of the loan lower.
Using online comparison platforms or apps, such as BankBazaar or PaisaBazaar, can help you evaluate the total cost of the loan, which includes not just the interest rate but also processing fees, prepayment penalties, and foreclosure charges. This way, you can choose a lender that offers the best deal tailored to your financial needs.
3. Understand the Loan Eligibility Criteria
Different lenders have different eligibility criteria, such as age, monthly income, employment status, and credit history. Generally, Indian banks prefer applicants who are salaried employees with a stable job history. Lenders also expect you to have a minimum monthly income, often between ₹25,000 to ₹50,000 depending on the city you live in.
NBFCs and digital lenders may have more lenient eligibility criteria, making them a good option if you have a slightly lower credit score or irregular income, such as from freelancing. Some lenders also allow you to check your eligibility online by using an eligibility calculator, where you enter details like your income, age, and employment details to see if you qualify
4. Opt for a Shorter Loan Tenure
When choosing the repayment tenure for your personal loan, it may be tempting to opt for a longer tenure, which results in lower monthly EMIs (Equated Monthly Installments). However, a shorter loan tenure saves you a significant amount of money in interest costs.
For example, a loan of ₹5 lakhs for 5 years will have much higher total interest paid compared to the same loan amount repaid in 3 years. Though your EMIs will be higher for shorter tenures, the overall interest outflow will be much lower, making it a smarter financial decision.
Additionally, lenders often perceive shorter tenures as less risky, which can sometimes result in a lower interest rate offer.
5. Borrow Only What You Need
One of the biggest mistakes people make when applying for a personal loan is borrowing more than they actually need. Larger loans mean higher EMIs and more interest, which can strain your finances. Calculate your exact loan requirement carefully and resist the temptation to borrow more than necessary.
Use an EMI calculator to figure out how much you can comfortably pay back every month. Borrowing only what you need helps ensure that you can manage your monthly payments without defaulting or falling into debt.
6. Maintain Stable Employment History
Lenders in India prefer borrowers who have a stable employment history. This is especially true for salaried employees, as a stable job reassures lenders of your ability to make timely payments. Most banks require at least 2-3 years of continuous employment in the same organization or industry.
If you’ve recently switched jobs, consider waiting for at least 6 months before applying for a personal loan. The longer you’ve been in your current job, the better your chances of loan approval and securing better interest rates.
For self-employed individuals or freelancers, lenders will review your Income Tax Returns (ITR) to assess your ability to repay the loan. Make sure your financials and documentation are in order before applying.
7. Submit Complete and Accurate Documentation
Personal loan applications in India require standard documentation, such as identity proof (PAN card, Aadhaar card), address proof (utility bills or passport), and income proof (salary slips or bank statements). Double-check your documents for any errors or outdated information.
If you’re applying through a digital lender, the process is usually much faster and paperless, but it’s still important to ensure that all your information is accurate. Missing or incorrect documents can delay your loan approval or even result in rejection.
8. Avoid Multiple Loan Applications
When you apply for multiple loans within a short period, lenders see this as a red flag. Each loan application is recorded as a hard inquiry in your credit report, and multiple inquiries in a short span can negatively affect your credit score.
To avoid this, research thoroughly before applying. Apply only to the lender whose eligibility criteria and interest rates suit your needs. A focused and strategic application approach is more effective than multiple applications, which can lower your chances of getting approved.
9. Negotiate Processing Fees
Most personal loans in India come with processing fees, which usually range from 1% to 3% of the loan amount. However, processing fees are often negotiable, especially if you’re a long-term customer with a good relationship with the bank or lender.
In some cases, you may even be able to get the processing fees waived during special promotional periods or if you apply through a digital lending platform. Always inquire about any hidden fees and negotiate to bring down the overall cost.
10. Showcase Additional Sources of Income
If you have other sources of income, such as rental income, freelance work, or business profits, make sure to mention them in your loan application. Demonstrating that you have multiple income streams can increase your repayment capacity, which may lead to a higher loan amount approval or even a better interest rate.
In India, some lenders are more willing to lend to individuals with additional income, even if their main salary is lower than the required threshold.
11. Apply with a Co-Applicant if Necessary
If your income or credit score is not strong enough to qualify for a loan, consider applying with a co-applicant. In India, a spouse, parent, or sibling can act as a co-applicant, provided they have a good credit score and stable income.
A co-applicant not only improves your chances of loan approval but can also help you secure a higher loan amount and better terms. Many banks offer joint personal loans, which can be beneficial in situations where one person’s profile is not sufficient.
12. Understand Prepayment and Foreclosure Charges
In India, many lenders charge penalties if you prepay or foreclose your loan before the tenure ends. These charges can range from 2% to 5% of the outstanding loan amount. Before you sign the loan agreement, make sure you read the fine print regarding prepayment and foreclosure charges.
Opt for lenders that offer flexible terms or have lower penalties, especially if you anticipate repaying your loan early.
Conclusion
Getting a personal loan in India in 2024 is a straightforward process if you’re well-prepared. By understanding the requirements, comparing your options, and following these 12 tips, you can secure a loan that fits your financial situation without unnecessary stress. Whether it’s for a family wedding, a medical emergency, or a big purchase, these strategies will help you navigate the personal loan process smoothly and successfully.