Here are a few factors that you need to consider before applying for a personal loan.
Despite its unsecured nature and high rate of interest, personal loans come to the rescue in times of immediate need of funds. Also, getting a personal loan has become a piece of cake nowadays. All you need to do is complete the KYC procedure and the money will be disbursed to your account.
However, here are a few factors that you need to consider before applying for a personal loan.
See if you can afford a personal loan
When you take a personal loan you would need to make the EMI payments on time, failing to do which would affect your credit score. Use an EMI calculator to get an estimate of your monthly EMI outgo. Make sure that your cashflow is adequate to pay the EMI every month along with other expenses.
Strictly consider your needs
Based on your income, you can be eligible for a personal loan of up to Rs 30 lakh. Despite the lucrative offer put forward, borrow just the amount of money you need. For example, if you need a loan worth Rs 2 lakh, borrow only that particular amount, despite your eligibility for a loan of Rs 10 lakh.
Consider your lender wisely
When going for a personal loan compare different lenders and shop for the lowest interest rate. Almost every bank and NBFC will bomb you with offers of personal loans, many of these will also sound very lucrative. However you need to shop around for the lowest interest rate. Your bank can offer you a personal loan at an attractive interest rate, but compare rates on one of the loan aggregator websites. Remember not to apply for several personal loans as this might adversely affect your credit score. Instead, check the rates with your lender.
Check different kind of loan products available
There are plain vanilla personal loans and then there are flexible loans. Vikas Kumar, Co-founder and CTO, LoanTap, said, “There are flexible loans that lets you pay only interest and bullet payments can be made every six months. It helps lower monthly cash outflow up to 40% versus regular personal loan that are EMI (Equated Monthly Installment) based.”
Read the fine print
It is important to read the fine print and be aware of the terms and conditions of the personal loan. One of the things you should look out for is foreclosure charges. “There may be extra charges on foreclosure. So, one is bound to pay fixed EMI for complete tenure of the loan despite improvement in financial situation of borrower,” he added.
Look for a customised loan
The feature of a personal loan is that it can be used for any end purpose. However there are some personal loans that are tailored specifically for certain needs like a family vacation, wedding and so on. “Here, the interest rates and payment cycles vary. So, before you sign up for regular personal loan, it is best to explore all other options too,” said Kumar.