How to select Bank for Personal Loan

POSTED BY rupeshdwivedi007 ON July 11, 2012 5:14 pm COMMENTS (8)

Hi,

I want to take personal Loan and currently I am getting two offer one from HDFC bank and the offer is interrest rate 14.25 + 0.5% processing fees also there are so many restriction on the prepayment which is:

Prepayment Salaried – No pre-payment permitted until repayment of 12 EMIs
Self-employed – No pre-payment permitted until repayment of 6 EMIs

Pre-payment charges Salaried – 4% of the principal outstanding after repayment of 12 EMIs. For top-up/enhancements – 2% of the principal outstanding
Self-employed – 4% of the principal outstanding after repayment of 6 EMIs .

and second I got a offer from BAJAJ Finance with interrest rate of 15.5% + 2 % processing fees along with other benefit which given below.

*Part prepayment facility available after 1st EMI and allowed 6 times in a year. Minimum amount to pay is EMI*3 and upper limit not defined can be up to the loan amount
*Nil prepayment/foreclosure charges after 1st EMI
*Prompt Repayment Benefit ( detail mentioned below)

Proposition Criteria Period of this Benefit:
1% of annualized Interest amount 1 to 12 months no bounce Life time, to be paid in on every 12 months.
13 to 24 months no bounce
25 to 36 months no bounce
37 to 48 months no bounce

Please let me know that which bank I need to consider or what are the basic points which I need to remember while going for personal loan and Is Bajaj Finance is reliable?

8 replies on this article “How to select Bank for Personal Loan”

  1. Nikhil says:

    Hi Guys

    I have one question regarding personal loan ? Can I take it for investment purposes ? Say in bluechip stocks or MFs ? I know its suggested not to, but is it allowed ?

    Secondly, does the bank increases the interest rate if the purpose for personal loan is disclosed to be stock investment ? And are free to do whatever we want with the personal loan according to law/rules ?

  2. Yogi says:

    Hi Rupesh,

    In addition to whats said above, here are my inputs:
    1. Need to be very-very clear about why you want to go for personal loan – i.e. if you dont have any other source to clear your need, you need to take this decision.
    2. Its better to have less tenure for loan payment. More you keep it alive, more interest you pay.
    3. I had good experience with HDFC – faster processing and less interest.
    4. Please check the website of concerned bank for the interest rates. In my case, Bank site was saying 14% interest rate and the guy inside bank was saying 14.5% – so I had to show him his site and asked him to make my rate as 14% (I saved 0.5% – no matter if its less or not, I saved). Most of the times guys wont say what their site says. So do li’l bit research. Always talk to loan representative in person, customer care / phone service dont give complete info.
    5. When you approach any bank for loan, before even taking it, check the amortization schedule and re-payment plan month by month for different tenures (say – 2 yr, 3 yrs and so on). Ask it from the representative. Take hard copy. If you are targeting to close in 12 months period, then for each tenure find out these aspects:
    a. How much interest you will pay in first 12 months
    b. How much principal is gone
    c. What would be the pre-closure amount (4% on standing principal) if you want to clean up loan.
    Once this is done, look out which tenure suits you best.
    6. Finally, there is a nice saying I heard long back about personal loans: “Taking a personal loan is like pushing a big stone from top of the mountain – worries gone in a minute. But paying back that loan, is like pushing same stone all way up-to the top of mountain.” 🙂 So be clear about the need.

    Yogi

  3. Dear Rupesh, where do you have your salary account (if any) or business account (if any)? How much loan amount you are looking for? Do you have some securities like NSCs, Bonds, FDs, LIC Policies, Shares, MF units?

    Please clarify.

    Thanks

    Ashal

  4. Even after pondering over you decide to take a personal loan and If you never intend to prepay the loan – then the lowest interest rate+processing fees makes sense.

    If you will prepay then you need to work out detailed calculations.

  5. Ramesh says:

    1. Why exactly do you need a personal loan? Ponder about this.

    2. What is your status – salaried or business income? Business income canbe settled against the interest which you will pay in that loan, so then it becomes an expense. But if you are a salaried person, it is better to prepay the loan since you will not be able to adjust the interest with your income – Bajaj is a better option then because of lesser prepayment charges.

  6. rupeshdwivedi007@gmail.com says:

    Hi Manish,

    I am looking for whole 5 year term since it has a less EMI.

  7. For how long are you going to pay this loan ? I mean what is your tenure ? If its a small one like 2-3 yrs, I think you should just go for the one which has faster processing + lesser interest .

  8. BanyanFA says:

    Hi,
    When it comes to Personal Loan, unfortunately borrowers have a very very weak bargaining powers. They are considered as high risk loans and the only things which borrowers have to do while selecting a bank are :
    1. Lowest interest rates;
    2. Prepayment penalty.

    All others may be redherrings. Why would you care if it is Bajajs or Citis or HDFCs as long as they are cheapest and give you the money.Once they give you the money, all are reliable.

    Regards
    BanyanFA

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