One of the most important decisions is choosing between fixed and floating interest rates offered by banks. Your interest rate directly impacts the EMI and total cost of your loan.

Understand the Interest Rate Options:

• Fixed Interest Rate: The rate remains constant throughout the loan term. It gives EMI predictability, but you won’t benefit from future rate cuts.
• Floating Interest Rate: Linked to a benchmark (like the repo rate or RLLR), it can increase or decrease over time. It offers the opportunity to save when rates drop, but comes with variability.
• Hybrid Rates: Some banks offer a fixed rate for an initial period and a floating rate thereafter.

When comparing rates:

• Don’t just look at the headline interest rate, check the effective interest rate, which includes the spread or margin.
• Use a loan amortization calculator to see how much interest you’d pay over the full tenure for each option.

Review Processing Fees and Additional Loan Charges

Interest isn’t the only cost. Every loan comes with fees and charges that can significantly impact your total repayment.

Common Charges to Watch Out For:

• Processing Fee: Usually ranges between 0.5% to 2% of the loan amount. Some banks may waive it during promotional periods.
• Documentation Charges: Fees for loan agreement, verification, or legal documentation.
• Prepayment or Foreclosure Charges: May apply if you repay the loan early (though most floating-rate loans are exempt).
• Penalties: Charges for EMI bounce, late payment, or cheque dishonor.
• GST: Applied to all fees and services.
• Request a Key Facts Statement (KFS) from the bank to see a breakdown of these costs before signing anything.

Understand Prepayment and Foreclosure Policies for Personal Loans

If you receive a bonus or an unexpected windfall, you might want to repay your loan early. But not all banks make it easy—or free.

What to Consider:

• Floating-rate loans: As per RBI guidelines, prepayment and foreclosure charges cannot be levied.
• Fixed-rate loans: Banks may charge a foreclosure fee of 2–5% of the outstanding principal.
• Part-prepayment: Some banks allow part payments toward the principal without penalties, reducing overall interest.
• Lock-in period: Certain banks enforce a 6–12 month period before prepayment is permitted.

Always clarify these terms upfront, especially if you foresee the ability to repay early.

Check Bank Loan Eligibility Criteria Before Applying

Applying without understanding eligibility can lead to loan rejection and a negative impact on your credit score. Each bank has its own set of eligibility rules.

Basic Bank Eligibility Parameters:

• Credit Score: A score above 750 is considered ideal and improves approval chances.
• Income Level: Minimum salary or income requirements vary by bank, location, and loan size.
• Employment Type: Salaried employees in reputed firms or government sectors are preferred. Self-employed professionals may need audited financials and ITRs.
• Age: Usually 21 to 60 for salaried; up to 65 for self-employed.
• Existing EMIs: Banks assess your debt-to-income (DTI) ratio. EMIs should not exceed 40–50% of net monthly income.

Use online loan eligibility calculators to assess whether you qualify before applying.

Use Digital Platforms to Compare Personal Loan Offers from Multiple Banks

You no longer need to visit different banks or manually compare their offers. Digital loan marketplaces allow you to evaluate multiple bank offers side by side in a few minutes.

Advantages of Online Comparison Platforms:

• Access to pre-approved personal loan offers
• No impact on your credit score due to soft checks
• Transparent comparison of interest rates, tenures, and fees
• Fast, paperless application process

Platforms like Buddy Loan match you with multiple verified lenders based on your credit profile, income, and loan requirements.
You can also check your credit score for FREE using Buddy Score, improving your chances of securing the best possible deal.

These platforms help you make data-driven decisions without the hassle of visiting multiple bank branches.

Read the Loan Agreement Terms Carefully Before Signing

Once your loan is approved, take time to go through the loan agreement thoroughly. This is where all the real terms and conditions are outlined.

Key Terms to Review:

• Final approved loan amount and tenure
• EMI amount and due date
• Interest rate type and reset frequency (for floating loans)
• Prepayment, part-payment, and foreclosure terms
• Charges for late payments, EMI bounce, or cheque dishonor
• Whether loan insurance is bundled, and if it’s optional

Always request a soft copy and a hard copy of the signed agreement. Don’t rely solely on verbal assurances from the loan agent.

Repay Your Personal Loan Responsibly and Track Performance

Securing the right loan is only part of the process. Repayment discipline is essential to avoid penalties and protect your credit score.

Smart Repayment Tips:

• Automate your EMIs with auto-debit or standing instructions.
• Track your EMI payments and review loan statements regularly.
• Make part-payments when possible to reduce principal and save on interest.
• Refinance if a better rate is available after a year or two.

Maintaining a good repayment history helps boost your credit profile and opens the door for future credit at better terms.

Conclusion

Borrowing the right personal loan from a bank isn’t just about choosing the lowest interest rate; it’s about choosing the right loan for your needs. That means understanding your purpose, calculating what you can afford, comparing multiple bank offers, and checking fees, flexibility, and eligibility thoroughly.

Using digital platforms like Buddy Loan can make the process simpler, faster, and more transparent. With the right research and responsible repayment, a personal loan can help you meet life’s needs without burdening your future.