In India, loans are broadly classified into Secured and Unsecured Loans. Secured loans require certain collateral and again are broadly classified into Home, Loan against property (LAP), Loans against insurance policies, Gold loans, Loans against mutual funds and shares, and Loans against fixed deposits. While unsecured loans do not require collateral, they require a good credit history. The types of unsecured loans are Personal loans and Short-term business loans.
Then there is another type of loan called the Flexi Loans where one can avail funds from their approved limit as and when required and pay interest only on the amount used. Education loans and Vehicle loans fall under this category.
Various types of institution are entitled to engage in lending activities in India which include:
● Scheduled and non-scheduled commercial banks;
● Non-banking finance companies (NBFCs);
● Cooperative society banks;
● Small finance banks;
● Microfinance institutions; and
● Individual money lenders
In this article, we will look at the 5 most crucial points to be taken under consideration while choosing a financial lender.
1. Research your requirements
Knowing what you want is extremely imperative in the loan market. For example, under the Home loan umbrella, four types of loans are made available - Land purchase loan, Home construction loan, Home loan balance transfer, and top-up loan. Now it is possible that while a lender has better terms for Home construction loans, they may not have a decent deal on the loan for Land purchase. Hence, here it is imperative that you do proper market research on the kind of loan product, type of lender (small or large), type of interest rate (fixed or floating), options for your down payment, etc. before you narrow down your decision on a certain lender.
Since every borrower has a different situation, it becomes important to find the one that suits one’s specific needs perfectly.
2. Know your lender
Thorough research can save you from a lot of future hassle! It is but important that a detailed background check of the lender is carried out at the initial stage itself, irrespective of what you hear about him. This will save you from a lot of headaches later on. Ensure that apart from doing a web check through reviews on various borrower’s forums, you also procure contact details of past clients and approach them directly.
3. Compare benefits
Keep in mind that the rate of interest that you are going to pay shall have a major impact on your regular budget. However, while you go for a lender offering you low-interest rate, you must also note that it should not be the only factor driving your decision as often a lender charging a higher rate of interest may provide you with other benefits of greater value.
4. Assess the penalties and prepayment costs
Getting a good deal on the rate of interest is not the end of it. You must also find out whether the rate is a fixed or a variable one; the total interest you need to pay over the loan tenure on your principal amount; the added charges such as the verification charges, processing fees, GST, penalty for late payment, penalty for pre-payment, etc. that you will require to pay. Apart from these you must also find out the rules and regulations for prepayments or paying off bulk portions of the loan.
5. Beware of marketing gimmicks
Do not judge a book by its cover and do not judge a lender by their flashy adverts!
Do not get carried away by the catchy titles of lender advertisements. These uncertain times have taught us that more than great interest deals, your best interest lies in a lender that will work closely with you to figure the best deal personally suiting you and will have your back when the going gets tough. Hence, prepare your questions well in advance; demand clear answers; ask for financial estimates; and get all clarifications to the T. There should absolutely be no surprises along the way.
In a nutshell, before deciding upon a moneylender, keep in mind that:
● While low interest rates are beneficial but do keep in mind that it is not the only benefit that one can avail over a loan especially a long term one.
● Do not forget to dig deep into the finer print and uncover any hidden fee or charges. Make sure that your lender has a robust customer service that can answer your queries and clear your doubts whenever required.
● All in all, by the time you have to sign on the dotted lines all your queries should be answered and your doubts resolved. Ideally at this stage you should not have any lingering questions other than the obvious, “So when do I get the money?”
● Trust your gut! It is absolutely important to trust your instincts when it comes to your finances. So if you are feeling uneasy about anything, act on your instinct.
Make sure that you are well prepared in advance before you zero in on a lender. The basic parameters and criteria to qualify for a loan remain universal. One bad lender can cost you not only a lot of money but will turn your whole life upside down in terms of stress, mental agony, hassled life and the list can go on and on. Hence, a little investment in terms of time and effort will save you a lot of trouble in the future.
So choose your lender wisely!