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How to get a cheap personal loans?

Do you know you can bargain with your bank to get a cheaper personal loans? Do you know what factors banks consider before they actually give you the money?

What are the charges you pay when you try to pay off your loan before the due date? Is the prepayment fee imposed on the balance outstanding or on the entire loan amount?

Is there a maximum rate beyond which banks cannot charge you on that personal loan?

What should the gap between disbursement of money and the date on which you make your first EMI payment be?

In a chat with readers on May 22, Get Ahead personal finance expert Harsh Roongta answered these and many more queries related to personal loans.

For those of you who missed the chat, here is the transcript.


mama asked, Sir, If I want to take a personal loan worth Rs 10 lakhs then which is the best bank that I can go to? Also, what are the documents required for the same. Please advice.

Harsh Roongta answers, Loan applicants often ask which bank offers the lowest rate of interest or which is the best bank. While banks keep publishing or advertising their interest rates for various personal loan products from time to time, there is more to the published interest rate than meets the eye.

Two loan applicants to the same bank may get a different rate. The advertised rate may not be applicable to them. Also, even for similiarly placed consumers, there is no such thing as a 'standard rate' for a particular bank. The rate published by banks is a 'rack rate' on which significant discounts are usually available.

Your ability to get the best rate depends on two factors:

a) Your profile -- are you talking to the bank that is most interested in a profile such as yours? The greater the bank's interest in your profile, the higher the chances of their offering a discount

b)Your bargaining power -- are you talking to multiple banks? In general, loan applicants who talk to two or more banks are effectively lining up alternatives. Playing one bank against another often helps but the key is not to overdo. After all, the threat of losing business to a competitor must look realistic and credible to the bank for it to lower its rate.

So, the key question now is: how does one go about getting the best rate? Imagine you are at a market trying to sell mangoes. The only way you can find out if you are getting the best rate for your mangoes is to let prospective buyers inspect the fruit and then compete amongst themselves so that you are able to determine who the highest bidder is and how much the highest bid price is.

Taking a loan is a matter of you selling to the bank how easily verifiable your income is. In the above example, replace mangoes with income proof documents and replace prospective mango buyers with prospective banks. Then, let the prospective banks examine your income documents in much the same way mango buyers would examine the fruit.

We recommend the following steps:

1) Enquire at all possible banks offering the kind of loan you are looking for or apply at a loan marketplace that offers free services -- an example is www.apnaloan.com.

2) When the bank approaches you, provide photocopies of as many documents that give proof of income as possible. Documents that interest bankers include income tax returns, bank statements, Form 16 and your salary slip.
3) The rate that you would be offered after your documents are looked at by the bank would often be lower than what you are offered at the first meeting. So do not take any decision before the bank reverts to you after examining your income documents.

4) Shortlist at least two banks (who offer the best possible rates and other terms relevant to you).

5) Scrutinise the draft loan agreement to ensure that there are no hidden clauses that could affect you adversely. For example, several well-known banks have been known to introduce fine print in agreements that protect themselves but leave the loan applicant high and dry when certain drastic events happen. If necessary, seek the advice of someone in the industry that you know and can trust. Only then make your decision


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