A financial emergency can strike you anytime and anywhere. For this, it is always advisable to have some cash in hand or liquid funds to snuff out such unforeseen contingencies. But if you don’t have enough money then one of the ways to get through difficult times is by taking out a personal loan. From sudden hospitalisation to renovating your house, personal loans are available to bridge the gap between your need and want. Hence, when you need money urgently, consider all avenues that offer personal loans before zeroing in on one option. This is because while some charge you low interest rates others might offer you more flexible repayment options. You have to choose an option that suits you the best.
Here are some of the avenues to get the cheapest personal loan:
If you have a good credit score, banks are the cheapest source of getting a personal loan. Moreover, if you have a long and sustained relationship with the bank then you needn’t even submit any documents to obtain the loan amount, as most of the banks already offer pre-approved loans to customers. However, banks generally do not allow partial prepayment if you want to close the loan before its tenure. Hence, most traditional players offer loans for longer terms and are generally less flexible.
Non-Banking Financial Corporations (NBFCs) are easy to get a loan from as they do not have to comply with stringent eligibility terms compared with banks. Here the interest rates are higher than banks because for an NBFC the primary source of funds is mostly a bank. “Big advantage that NBFCs provide is allowing flexible repayment options and fully transparent charges. All these factors combined make NBFCs an attractive choice when compared to banks,” says Manish Chaudhari, President and Chief of Staff, Poonawalla Fincorp, a Pune-based NBFC.
Unlike banks, fintech companies offer loans of varying tenure ranging from a few days to years but the interest rate is generally much higher than banks. Moreover, while banks and NBFCs depend on traditional sources for information such as credit history and score, fintechs typically rely on new-age alternatives, such as social data streams or geographical indicators.
“This helps them reach a larger number of borrowers who have varying credit requirements and eligibility benchmarks, which may make it difficult for them to access credit the traditional way. This flexibility, however, comes at the cost of interest rates. When the financial profile of the customer is less clear, the associated credit risk becomes much higher and hence Fintechs usually charge higher rates of interest,” says Adhil Shetty, CEO, of BankBazaar.com.
It is advisable to explore other options available in the market. For example, many retail outlets offer zero-cost EMIs on furniture or electric equipment, which could be a better deal than for short tenures ranging from 6 to12 months.
Most importantly, obtain the personal loan from sources that are governed by the Reserve bank of India (RBI) and not fall into the hands of unregulated apps, which charge you astronomical interest rates and resort to harassment, in case the borrower defaults on repayment.
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