Personal Loans
Personal loans, as the name indicates, are not associated with any specific kind of loan but are a great way of dealing with emergency situations or for those cases where normally loans are not available.
Some facts and benefits of personal loans:
- Personal loans are usually not secured; they do not require any kind of collateral security.
- One can use a personal loan for any purpose. There is no obligation from the bank for any specific need.
- Personal loans are offered both by banks as well non-banking financial institutions.
- These personal loans are helpful for sponsoring a child’s education or buying a piece of land or for marriage or even for holidaying.
- Personal loans are usually on the higher side and these rates vary across the banks.
- Personal loans, apart from being useful for personal purposes, also have the added advantage that their disbursement take very less time and they require minimal documentation for the processing purpose.
- Unlike home loans, personal loans come with a short-term tenure and are usually given for a period of 1 to 5 years.
What to consider before applying for a personal loan?
Everyone wants to get the best deal when applying for a personal loan. Here we will do a comparison of personal loan rates for different banks. This will help you in getting an evaluative view of the loan, which suits your requirements the best.
The rates for personal loans for any bank are not fixed but variable. Rates can be different depending on two major factors:
- The amount of loan needed
- The term period of the loan
Apart from the above, some other factors that are considered by banks include:
- Bank’s pet! Banks offer special personal loan rates for their preferred customers.
- Sometimes, it has been observed people with higher salaries and multiple investments with a bank are offered a lower rate for personal loan.
- Along with these factors, banks will take into account the company employment status and borrower’s credit standing or credit history. So it is important that you pay your credit card bills and loan EMIs on time.
- Another thing to bear in mind while applying for a personal loan is to consider the other loans that you might be holding. Your eligibility for a personal loan will certainly be impacted if you already have other loans going for you.
- Personal loans are usually not offered if you are a student or have retired from active service.
How to find out the best deal for you?
There are many financial institutions that offer personal loans. It can be a tedious task trying to find out the best or the most suitable one for your personal need. We have provided a brief comparative analysis of personal loan for some of the top banks and financial institutions like ICICI Bank, HDFC, SBI, Fullerton India, Kotak Mahindra Bank etc.
There are many different parameters of comparison. We will consider some of them here:
#1. Rate of Interest
The most obvious parameter is the rate of interest itself. The table below shows the most recent personal loan interest rates updated in November 2015.
| Bank | Interest Rate |
| ICICI Bank | 13.49% – 17.50% |
| HDFC Bank | 12.99% – 20.00% |
| SBI | 17.80% |
| Kotak Mahindra | 11.50% – 20.00%, Special Offers of 11.5% for 15 lac + 1 lakh Salary P.M |
| Axis Bank | 15% – 20% |
| Bajaj Finserv | 15% – 17% |
| Standard Chartered | 14% – 18% |
| Fullerton India | 16% – 32% |
| IndusInd Bank | 14% – 16.5% |
(Source: Best Loan Providers)
#2. Processing Fee
All the banks have a certain minimum-processing fee attached with personal loan. Most of the banks have processing fee varying from 1% to 3%. A break-up of latest processing fee is tabulated below:
| Bank | Processing Fee Rate |
| ICICI Bank | 0.8% – 2.0% |
| HDFC Bank | 0.99% – 2.0% |
| Bajaj Finserv | 2.0% – 2.5% |
| Kotak Mahindra | Rs. 500 – 2.0% |
| SBI | 2.0% – 3.0% |
| Axis Bank | 2.0% |
| Standard Chartered | 1.0% |
| Fullerton India | 2.0% |
| IndusInd Bank | 1.0% – 2.0% |
(Source: Best Loan Providers)
#3. Prepayment Charges
There are certain banks that levy a pre-payment charge on personal loans. There are many banks that do not charge anything if you want to payoff your personal loan well in advance. If you think that there is a possibility for you to use the prepayment option at some point of time during your loan payment then it is important to consider and compare banks that charge prepayment penalties. Sometimes the prepayment charges can be as high as 4% – 5% and you would want to be careful before considering a personal loan from such financial institutions. Below are the prepayment charges for different banks.
| Bank | Processing Fee Rate |
| Bajaj Finserv | Nil |
| Axis | Nil |
| SBI | NA |
| Standard Chartered | 0 – 5.0% |
| HDFC | 4.0% |
| Fullerton India | 4.0% |
| Kotak Mahindra Bank | 3.0% – 5.0% (Nil after 12 Months for Loan amount above 10 lacs) |
| ICICI Bank | 5.0% Or Nil (For Loan Amount More Than 10 Lacs) |
| IndusInd Bank | 4.0% |
(Source: Best Loan Providers)
Online EMI calculators help to decide the personal loan amount
There are many online EMI calculators available that can help you decide what amount of personal loan you can comfortably apply for within your budgetary constraints.
The following picture gives a brief description of how the EMI calculator can help you decide the personal loan amount based on your budget. For example, if you can afford to pay an EMI up to Rs.12000 for 5 years for an amount borrowed at an interest rate of 15%, then you can safely apply for Rs.500000.
(Source: EMI calculator)
You can clearly see that on a borrowed amount of Rs.5 lacs @15% rate, one would have to pay almost 30% of the borrowed amount as interest payment. EMI calculators help you show you at a quick glance what are the various financial parameters at play so that you can easily decide what suits your needs the best. These financial calculators can be used for any bank. All one has to do is to plug in the rates and adjust the loan and tenure fields and the calculators will tell you exactly your EMI payments.
Apply for a Personal Loan
Below are some of the bank sites where one can apply for a personal loan online:
Axis Bank
http://www.axisbank.com/personal/loans/personal-loan/personal-loan-features.aspx
SBI
https://www.sbi.co.in/portal/web/personal-banking/sbi-saral-personal-loan
ICICI Bank
http://www.icicibank.com/Personal-Banking/loans/personal-loan/index.page
HDFC Bank
http://www.hdfcbank.com/search/personal-loans/index.asp
Similar website URLs are available for other banks and financial institutions which offer personal loans.
Conclusion
The personal loan offers from various institutions are quite competitive. Banks like ICICI, HDFC, Axis and SBI stand apart a bit from the other banks with respect to their interest rates, processing fee and prepayment charges. ICICI, Axis and HDFC banks have variable range of interest rates and the lower interest rates are certainly an attractive feature for those who qualify. If one wants fixed interest rate, then SBI is the best choice although it’s a bit on the higher side. These four banks offer a good deal on processing fee as well with most of them having a higher limit of 2%. SBI has its processing fee higher limit of 3%. In prepayment charges SBI and Axis bank levy no charge, where as HDFC charges 4% and ICICI 5%. ICICI does not charge any prepayment fee for personal loans in excess of 10 lacs.