Personal loan helps everyone in an unexpected financial crisis. Whether it’s an unforeseen expense during a wedding or renovating your home, emergency medical needs, restructuring your debts, starting a small business, etc., a personal loan can help you with immediate resources.
Here is a list of five things to check before you avail of a personal loan –
Interest rate offered
The interest rate can vary depending on your creditworthiness. In addition, interest rates must be reviewed and compared with those of another institution before applying for loans, since interest rates usually vary due to several factors including competition among lenders. In this case, you can benefit from a loan at lesser interest.
Since personal loans do not carry any security they attract high interest rates. Since there is no guarantee of repayment and nor does the lender have any asset in his possession to sell off the rate of interest is unusually high. As a customer you have to find a loan with lower interest rate to benefit
Loan tenure
Make sure that the tenure of the loan is acceptable to you. Loans with very short or long tenure can cause financial loss. You must always select a tenure that is suitable to your needs. A very long tenure would mean low EMI but also you must remember that you will be paying interest for a longer period. Thus your total outflow of interest will be more. Short tenure would mean rapid payback of principal which reduces total interest but makes the EMI expensive. The mean between these two would be best.
Eligibility
For being able to receive a personal loan you would have to check your eligibility to receive such a loan. Most banks and financial institutions have a web page with loan eligibility calculator. The amount of personal loan which can be given to you depends on the applicant’s income, age, credit score and other outstanding debts. If the loan is at all provided the loan amount and tenure of loan would depend on the above factors too. These factors vary widely between different financial institutions and it is quite possible that another bank will accept someone who has been refused earlier.
Capacity to pay back
It is always best to think calmly about your ability to repay. What is the EMI that you can afford depending on your income and monthly expenses and other commitments. The bank that is providing you with the loan will also carry out similar due diligence. It is of utmost importance that a borrower has sufficient funds to repay the monthly installments.
Applicable penalties
Lenders usually charge a fee if there is pre-payment. It is because early repayment prevents the bank from earning interest which they had expected as an income. One must always find a bank with least rate of prepayment penalties. Also watch out for exorbitant processing fees and late payment fines.
Conclusion
Take a personal loan only if it is absolutely needed for an emergency. It makes no sense to go on a vacation by paying exorbitant interest rates. Use personal loans judiciously and pay them back as soon as possible.
Since a personal loan is associated with high interest rates, it is always advisable to obtain a personal loan only if you need money urgently and do not want to provide other assets as collateral. Personal loans are not secured, which means that nothing has been given as collateral.