Personal loans are the quickest and easiest to get loan type. Within a week of application you can get money from the lender provided you meet all of their eligibility criteria.
Lenders use every possible tricks to entice people. And why not higher interest is what makes lenders profitable. The reason for charging high interest is because there is no need of security or guarantor. And moreover you do not have to specify the reason for taking loan and you can use it for any purpose. For e.g. you can use it for marriage expenses, pay-off other loans/credit card balances and many others.
There are multiple options to get personal loan and most follows:
- Traditional approach to banks: public, private, co-operative banks or non-banking finance companies (NBFC).
- Peer to peer lenders (PTPL or P2PL) such as lenders.in, lendenclub.com and many others.
- Against FD. Read more on getting loans against fixed deposits in India.
- Against LIC policy
With so many options available, whom should you approach for taking personal loan for small amount? Here we will consider loan amount of less than 2 lakhs.
As listed above, you have good number of options for taking loan. But question is whom to select when loan required is very small and what factors should be taken into consideration?
So here are the tips before buying personal loan:
- Low interest: Saving money by opting for interest rate should be your ultimate objective when taking loan for small amount. So opt for low interest personal loan, as you’ll have to pay less amount of money by the time tenure ends. Buying personal loan for amount let’s say of Rs. 50, 000 from peer to peer lending companies will require you to pay less interest rate compared to banks. Moreover on PTPL market place you can bargain with individual lenders and get best price.
- Faster processing: Normally personal loan is required when there is an immediate need of money. If you select a bank which takes lot of time to go through your application and approval then it doesn’t make sense to choose such lender. But if you are getting fair deal even if there’s a delay then choose a profitable option.
- Quickest transfer: Loan should be credited to the borrower’s account as fast as possible after approval. This factor should be considered by individuals with urgent cash requirement.
- Low/Zero pre-payment and pre-closure charges: Apart from higher interest rates, lenders also apply pre-payment and pre-closure charges. The latter naturally is not very profitable for them as they will eventually end up earning less money compared to the money received when full tenure is over. So if you are taking personal loan for small amount such as Rs 50, 000 or Rs. 1, 00, 000 then certainly avoid companies charging these two fees. Best recommended are peer to peer lenders. One of the difference between P2PL and banks is no charge on pre-closure and pre-payment charges on loan account benefitting to individuals with low or poor income. Check out how poor earners can get personal loan.
- Hidden charges: Now comes the most important factor often ignored/overlooked by the borrowers or not disclosed by the lenders clearly or in advance. And PTPL companies gain an upper edge over banks. Most of them do not have any hidden charges compared to banks.
- Repayment tenure: As mentioned above longer term, earns lenders more. But for a small amount longer tem does not make sense especially when the applicant is from a poor background.
If small sum of money is needed then ideally you should ask your relatives or friends. You will end up saving good amount of money as interest won’t be applied.