A personal loan is a savior when you want to get out of an immediate financial crisis. Personal loans are generally difficult to obtain compared to other types of loans as they demand strict qualification of requirements. It is the unsecured loan that is fixed for an individual obtained from the bank and is processed immediately.
Here are 7 things to keep in mind if you are thinking of borrowing a personal loan:
Watch out your finances: This is not a pre-requisite for personal loans but for all kinds of borrowings. Have a close watch at your finances. Before you opt for a personal loan think of your present as well as future finances. A personal loan does appear to be the dead-end solution for all your financial needs. But in reality, if the finances are not managed well then personal loans can turn down your finances in a way that is totally irreparable. Before signing out the final deal, have a clear cut idea about the loan amount and the rate of interest, this will give you a rough estimate of your EMI that you need to pay out every month. Then prepare a rough estimate of your monthly expenses. This will help you calculate if the new EMI can let you sustain along with the other monthly expenses.
Be wise with the decision of the final amount: Borrow what you need. Do not borrow more than what you require. It is always recommended to borrow the amount that is your necessity. Analyze the situation for what you need the loan. Then decide how many loans you would require to deal with that financial emergency. The bank may offer you a bigger amount of loan if they consider you to be of higher credit worth. However, do not take extra loan compared to your need. Higher the loan amount, higher will be the rate of interest and higher will be the debt. So be wise and borrow the amount that is needed for you. Do not go overboard with the loan amount.
Look out for affordable alternatives: The rate of interest is generally higher compared to the other loan types that are strongly backed by assets. Assets could be in the form of gold, vehicle, property or anything else. Gold loan or even the top-up home loans are the best alternatives as compared to the personal loan. The interest rate for such loans is much lesser as compared to the personal loan. Look out for options to get secured loans if you have an asset that could be used as collateral.
Bargain and get the best deal: The unsecured loans market has grown to be very competitive. There are many vendors willing to give unsecured loans. This just demands you to meet their basic criteria of securing a personal loan. Select the best lender and look out for lower rates that the lender can offer. Just do not keep the interest in mind. Focus on other fees and charges like the interest or penalty on late payment, prepayment penalty, cheque bounce charges, etc. Some banks offer lower interest rate but the other fees will be higher. In that case, better explore all the options available before you select the best lender.
Read the terms and conditions: It is the prime duty of the banks to disclose all the charges and fees that will be levied on you as you take a personal loan. Still, it is your prime duty to read the terms and conditions before you sign the deal. See all the conditions laid down and check how best it suits you. The hidden charges like the processing fee, loan cancellation, and foreclosure charges all should be clear before taking the loan. Do not just trust the verbal statements of the bank employees. Read the fine print and do an extensive research before making the final smart choice.
Look at your credit score: Credit score is the primary and the most important thing that the banks initially look for as you apply for the personal loan. As personal loans are not backed by any other asset it is the credit score which is of maximum significance. This information is the sole deciding factor of how reliable you are as a borrower and also how big risk you can be to them. Those people with a very good credit score procure loans easily and with a very good rate of interest.
A personal loan is for emergency only: Opt for a personal loan only for emergency situations. Non-payment of even a single EMI can affect your credit score negatively. This will make it difficult for you to get loans in the future. So, go for personal loans when you realize there are no other options.
Personal loans are best for emergencies. But please keep in mind these points before you take a personal loan in future.