Personal loans have always been known among people due to how quickly they can be acquired with no collateral required. This has been made faster with the online facilities available now. Whether one requires money for a medical emergency or wedding fund or your child’s higher education and even to clear off outstanding dues, personal loans come very easy to avail. However, due to their unsecured nature, they also have considerably higher interest rates as compared to other loans and it is important to consider certain things before taking a personal loan to do what best suits you.
1. Analyse your needs and how taking a personal loanwill solve it
The first step to consider before taking a personal loan is to determine how much you need. Personal loans may be easy to avail of and seem to be a quick fix for money needs however they have high interest rates and short repayment terms leading to heavy monthly payments. One should remember that the loan would be a fixed part of your budget for the foreseeable future and have a financial plan accordingly to meet certain fixed needs.
2. Maintain a good credit history
It is important to be aware of your credit score before applying for a personal loan to make sure one qualifies for it. A high credit score assures the lender of the repayment capacity of the borrower proving the borrower’s creditworthiness. A CIBIL score of 750 and above is considered good to apply for a personal loan. You can maintain a good credit score by paying your EMIs and credit card bills and other dues on time. Automating payments is a good way of ensuring this.
3. Consider your overall finances to arrive at the correct loan amount
At times if there is more than one earning member in the household, a higher personal loan can be taken since the ability to repay is also higher. However, whether it be one or more earning members in a household it is necessary to consider the actual requirements for a personal loan before taking it. One should list down needs and requirements to prioritize which needs have to be financed with a personal loan and based on the expenses and other prices dependant on it, one should arrive at a correct loan amount needed to borrow.
4. Assess all costs
Along with the EMI and interest payments, it is important to consider all the additional costs that form a part of the total loan amount such as prepayment fees, processing fees, late payment fees, etc. A borrower should only sign documents to avail of a personal loan after they have assessed the total loan amount to be repaid.
5. Check the fine prints first
This is an indispensable step before taking a personal loan. It is important that you ask the right questions and goes through the personal loan agreement thoroughly to confirm every small detail and clause. One should visit the lender company’s website and check their credibility and status. One can check the customer reviews on the website if the access is available and also if any complaints are filed against them. This also helps to identify any hidden additional costs related to repayment or deferred payments.
6. Consider your needs, not your eligibility
It is not wise to take a personal loan just because one can afford it. One might have a tendency to borrow a higher amount of loan as it just takes minutes or hours to borrow even huge loan amounts. It is important to calculate the exact amount the money one needs and borrow only that much.
7. Consider other loan options
One should also look out for other alternatives before taking a personal loan to avoid paying high interest rates. One can consider home loans, car loans, or loans against fixed deposits that have a comparatively lower interest rate.
8. Measure your ability to repay and negotiate interest rates
One should prepare for loan repayment before taking a personal loan. You must have a calculated plan to estimate your monthly EMI and consider your other debt repayment and financial obligations to judge your ability to repay the loan amount on time. One should check if they have a good association with the lender before applying for a personal loan. If you are an existing customer of the bank or lending financial institution one can negotiate to get lower interest rates and better services.
9. Compare interest rates by lenders
One can get a considerably low-interest rate by investing some time in researching and comparing personal loan interest rates offered by various lenders. Getting a lower interest rate would directly save some money. Several websites and lenders offer the option of personal loan EMI calculators that can assist you in checking your eligibility, EMI term, loan amount, interest rates by comparing different lenders available online. Doing this before taking a personal loan would ensure a personal loan suited to your needs.
10. Understand the consequences of not be able to repay the loan in time
It is quick and easy to get a personal loan however defaulting on EMIs or failure to repay the loans can have drastic consequences. It might lower the credit score affecting the creditworthiness of the borrower, leading to difficulty in borrowing in the future. Some financial institutions have a very high default penalty. Such things might further increase the overall cost of the loan.
Personal Loans can be taken within a short span to meet money requirements swiftly but like any financial product, they are productive when one has a good financial plan. Before taking a personal loan, a borrower should consider all the before and after scenarios of taking a personal loan right from eligibility to get a loan and deciding upon the amount of loan to having a repayment plan and calculating EMIs. One should also focus on understanding the agreement beforehand and estimating the consequences in case of loan deferment. Choosing the right lender and having a good association is also key. A prudent outlook towards availing of personal loans coupled with thorough research and borrowing is considered beneficial.