A consumer loan can provide an accessible and affordable way of borrowing whether you need to buy a new scooter or plan to take the holiday of a lifetime. They provide a flexible means of borrowing anything between Rs. 50000 and Rs. 700000 over a loan period ranging from one to five years. This means you can tailor the amount you borrow, the loan period you borrow over, and the monthly repayments to your income.
Many consumer loan providers with different lending criteria and interest rates are available. The rate charged on your loan will depend on the amount you borrow (with more significant amounts attracting a lower interest rate) and your circumstances. Only those with a good credit history will likely be eligible for the headline rate consumer loan providers offer. This is because unsecured loans are a riskier investment for loan providers as there is no security to reclaim their funds if repayments are not met. Those with an inferior credit history who have been refused unsecured borrowing may find a secured loan more suitable.
There are two main categories of consumer loans. Fixed personal loans are the most common variety, as the loan amount and total interest payable are divided evenly over the loan term. This practical option lets you realistically plan how much you can pay back each month and borrow accordingly. The interest rate is also fixed for the term, so your monthly repayments will remain the same whether standard interest rates decrease or increase.
When comparing fixed unsecured loans, using the repayment calculator supplied by each loan provider to work out the likely monthly repayments for the amount you want to borrow is advisable. Remember that these are only estimates based on the company’s typical lending rate, and your repayments may be slightly higher depending on the interest rate offered.
You should also compare fixed loan plans on whether they offer any repayment holidays during the loan term and whether they impose any charges for early repayment.
Nowadays, wherever you turn, someone is offering to lend you money; this can make navigating the vast number of lenders on the market incredibly difficult, especially as picking the right loan isn’t always as simple as going for the lowest rate. I recently downloaded the PLANET APP and was amazed that it offered to sanction my loan within seven to eight minutes if all steps were followed sequentially. This is the official app of L&T Finance, a leading NBFC (Non-Banking Finance Company) registered under the Reserve Bank of India in 1934.
To make borrowing a little more straightforward, here’s our guide to finding a loan that’s right for you, whether it be for planning a vacation, purchasing that iPhone you’ve been craving, or maybe the wedding you’re planning for!
Navigating Interest rates
When you start searching for a loan, you’ll find that most lenders try to attract your business by advertising a ‘fantastically low’ typical interest rate; this figure represents the standard rate of interest a company’s loan customers are paying, including standard fees. While this does help you to compare loans on a like-for-like basis, there are several points you should consider before simply applying for the lowest-rate loan you can find.
Firstly you have to remember that the rate advertised as a ‘typical interest rate’’ is just that; only 2/3 of the banks’ customers have to borrow at the headline rate for it to be advertised as ‘typical.’ As the vast majority of loan providers calculate the interest rate you’ll pay based on the ‘risk’ associated with your circumstances, there is a distinct possibility that you may not be offered standard lending but a much higher interest rate on your borrowing.
Secondly, loan providers have devised a way to lower their headline rate to attract new customers. They do this by being highly selective during the application process and simply rejecting customers who do not fit their lower rate criteria. For this reason, if you don’t have a golden credit record, it is often better to apply for a loan with a provider advertising a slightly higher lending rate, as their acceptance rate is much higher too.
L&T Finance fits this criterion. They are in the mid-lending interest rate segment, and their loan sanction process considers how your credit scores change over time. In other words, they do not just look at your credit score today, but its historical record, so you have a higher chance of obtaining the loan.
It often works that the more you borrow, the lower the rate of interest you’re charged; while this isn’t an excuse to borrow thousands extra, it’s worth considering when working out which loan best suits your circumstances. The headline lending rates advertised by many loan providers only apply to borrowing over a certain amount, so it’s worth checking the small print before you apply. Additionally, interest rate boundaries tend to be fixed at set figures (i.e.100s), so obtaining a ’rounded off’ quote may be beneficial if the difference is better than your intended borrowing.
Navigating lending rates can be confusing as they don’t tell you how much you will pay. By comparing the total amount repayable (capital and interest repayments) for a loan alongside the estimated monthly repayments, you’ll better understand how different loans compare and how much you can realistically afford to borrow over what time scale.
Most providers now fix the interest rate you’ll be asked to pay on your loan; this means that your monthly repayments will be identical throughout the term allowing you to budget effectively. However, the longer the term of the loan, the more interest you’ll end up paying. So, although it can be tempting to spread out your borrowing or borrow more than you need, by working out how much you can reasonably afford to pay back each month and deciding on the shortest term that meets this criterion, you’ll save yourself a fair amount.
Along these lines, many providers offer you an optional repayment holiday at the start of your loan. The PLANET APP also has a friendly EMI reminder so that you do not miss your EMI. Both these options are built into the app. While the latter is beneficial, I would be careful while using the repayment holiday unless there is no other way (as during emergencies).
Payment Protection Insurance (PPI)
These days if you manage to get through a loan application without being offered PPI, you can consider yourself to have witnessed a miracle. PPI is designed to cover your loan repayments if you cannot do so because of an accident, sickness, or unemployment. This is an excellent optional add-on provided through L&T Finance’s PLANET APP.
While this sounds like a good idea, loan providers tend to charge you for this cover, adding more than a significant amount to the cost of your loan that isn’t reflected in the lending rate. Additionally, the terms and conditions of these policies are very restrictive and may not necessarily pay out when you need or expect them to. Suppose you are overly concerned about missing repayments. In that case, it’s far better to take out a policy that covers your financial commitments rather than obtain one singularly for each.
In conclusion, while finding the right loan for you isn’t as straightforward as it may seem, by being aware of the possible pitfalls of loan applications, you’re in a far better position to compare loans on a like-for-like basis and choose the one that is going to give you the best deal.