Never compare just two offers. The cheapest and most expensive offers you'll see for the same product often differ by 4 – 8 percentage points in APR. With three comparable offers in front of you, the outlier becomes obvious.
"The offer you don't compare is the one that quietly costs you the most."
The rule of three
Before you sign anything, collect three comparable offers on the product you want. Not two. Not one. Three. A single offer is a quote; two is a choice; three reveals the shape of the market.
APR, not the headline rate
The interest rate banks advertise (the "flat" or "reducing balance" rate) often excludes the processing fee, documentation charges, GST on fees, and any bundled insurance. APR — the all-in annualised cost — includes them.
A loan at 11% with a 3% fee often costs more over 3 years than a loan at 12.5% with no fee. You only see that by looking at APR, not the headline.
Rule of thumb
If the lender can't give you APR in writing, treat the "all-in" rate as unknown — and price the offer higher than you would have.
Total repayment: the number that settles arguments
Take each offer. Compute EMI × number of months. That's your total outflow. Compare the totals — ignore which EMI is "lower", because it's often just a longer tenure in disguise.
| Offer | APR | Tenure | EMI (₹2L) | Total repayment |
|---|---|---|---|---|
| Lender A | 11.8% | 36 months | ₹6,613 | ₹2,38,068 |
| Lender B | 14.5% | 36 months | ₹6,884 | ₹2,47,824 |
| Lender C | 18.9% | 36 months | ₹7,330 | ₹2,63,880 |
Across three years on a ₹2 lakh loan, the gap between the cheapest and costliest offer is close to ₹25,800. That's the cost of not comparing.
Affordability: the forgotten filter
Banks will often lend you more than you should borrow. A useful internal check: your total EMI commitments (across all loans and cards) should typically stay under 40 – 50% of net monthly income. Above that, a small income shock turns into a missed payment.
Prepayment terms
If your income is likely to rise or you expect a windfall (bonus, tax refund, sale proceeds), prepayment flexibility is worth real money. A 2 – 4% foreclosure penalty on a fixed-rate loan can eat a year's worth of interest savings.
- Floating-rate personal loans: usually no foreclosure charges (as per RBI guidance)
- Fixed-rate personal loans: commonly 2 – 5% of outstanding
- Home loans (regulated): typically no penalty on floating rates
Hidden fees and last-mile surprises
- Processing fee + GST — often 1 – 3% upfront. Worth negotiating.
- Insurance bundling — sometimes added without clear opt-out. Confirm whether it's optional.
- NACH bounce / late-payment fees — small each time, but compounding reputationally.
- Rate-reset clauses on floating-rate products — read the reset frequency and benchmark.
- APR, not headline rate
- Total repayment across tenure
- EMI as % of net monthly income
- Prepayment terms
- All fees — processing, GST, insurance, late charges
- Rate-reset clauses (if floating)
- Grievance and customer-care SLAs
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