Consider factors other than the interest rate for personal loans


It is common these days to receive an SMS or an advertisement, at least once a day, from a lender that promises you an instant personal loan at an attractive interest rate. These interest rates are usually quoted at a lower range to make it attractive to consumers, but that’s usually not what you get at the end of the application process. So, regardless of the high or low interest rate while enjoying Greendayonline – instant loans, there are other important factors that should be given equal importance.

One may need funds in an emergency like a wedding, home improvement, etc., and a personal loan comes to the rescue if taken diligently. You should always look beyond the interest rate. Some factors to consider are:

Processing fee – As a rule, consumers ignore the cost processing fee, which is 1 to 2% of the loan amount. Some lenders charge a fixed fee. Due to a competitive segment within the personal loan industry, processing fees differ from bank to bank. Hence, you need to compare this cost to select a lender with lower processing fees.

Pre-closing or prepayment conditions – We tend to borrow to finance our urgent needs occurring at the eleventh hour. The intention is to pay off this borrowed money before our liquidity situation improves, and then save on interest charges. You should consider the precondition for closure and the penalty cost associated with such a facility, and choose a lower penalty cost.

Late payment fees – Sometimes we skip or make an Equal Monthly Installment (EMI) payment late due to cash shortage. Making a late EMI payment also results in unnecessary penalty fees for borrowers. Therefore, if you anticipate a shortage of cash flow to service EMI at some point, you should also check and consider the penalty rate.

Loan approval process – The process involved in personal loan will vary from lender to lender depending on internal condition. However, since we only borrow a personal loan to meet an immediate need, the approval process should be quick and easy.

Borrow according to your needs – Personal loans charge higher interest rates than other loans and it is one of the most expensive forms of debt. So if your short term need is Rs 2.50 lakh, only borrow that amount. Although you can borrow more because of your high creditworthiness, it doesn’t make sense to pay unnecessary interest charges.

Security of pledged or collateral papers – The personal loan is mostly unsecured, unlike the home loan or car loan which requires guarantees. However, some lenders require collateral or even a guarantee for a personal loan and require that confidential borrower information be submitted. As such, you need to check the security level of the lender and the security measures for storing your papers or data. The documents should be available to you at the end of the obligation period.

Smart loan options – Few lenders offer additional personal loan formulas, such as the option of partial or full repayment without any fees. Explore and compare all the additional benefits available with personal loans and choose the lender accordingly. However, don’t be lured in by additional offers that will increase your EMI cost. A classic case is the launch of an accident insurance plan without any premium cost. But in such cases, the insurance premium is usually added with EMI.

Personal loan is a costly responsibility that requires basic homework on the part of the borrower. This will not only help you minimize the overall cost, but will also keep you informed in advance of proactive measures. The most important thing to keep in mind is to only borrow when needed, in an emergency, and not out of whims and fancies.


  • Check processing fees, prepayment terms and late payment fees
  • Make sure the loan process is quick and easy and don’t fall for the bundle trap

The writer is founder and CEO of

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