Personal loans can be the perfect solution for an acute cash crunch. These sets of loans do not require collateral assets as security. This keeps them unsecured, leaving them exposed to higher levels of risk. Consequentially, financial institutions charge a higher interest rate on loans compared to the ones with supporting collateral. Because of this, we advise you to take a closer look at the factors mentioned below:
Here, are the points to be considered before availing a personal loan:
Assess whether you’re reaching the most appropriate option? Although, there are always better available options compared to personal loans. Look carefully through the options and analyze if you can get something at lower rates and without cheaper collateral.
Govern the purpose of loan: Understand the need for a loan and then forward your application. It’s an applauded recommendation by the sponsors to take a loan only when you have an urgency and you failed to get together required resources. It’s an option when you do not have other choices. If your plan is around unnecessary spending, you will only mount on your existing burden.
So, below are the 5 Factors to consider apart from the interest rate:
1. Loan amount-
The most important factor to consider before taking a loan is the total loan amount and the tenure of the said loan. It is detrimental to take on a loan amount which is more than required. This will increase the repayment values in contrast to the larger EMIs. This way you’ll end up with short repayment tenures.
This factor has been explained in the above paragraph.
3. Hidden costs & Processing fees–
Why do you think they say read the loan document properly? This will empower you with all the required information, to do with the loan regulations. Alongside this, you will know the consequences of the non-repayment of loan EMIs, hidden charges, and processing fees if any. This will help you to plan your money well and be consistent with interest payments.
4. Credit Score–
If you already know of your credit score, then it’s easier to apply for a loan. If the loan amount requested is small, then it’s much sorted for future borrowings. You can also check out an overdraft or cash-credit facility. If your credit score is great, then the bank overdraft option can be easily realized as compared to a personal loan.
5. Monthly EMIs–
Before you even consider a personal loan, it’s imperative to think over the monthly installments. Moreover, take a call to think whether you will be able to stick to payment obligations or will you fail to make payments as due. Else, you can focus on working out an alternative plan to pay on a timely basis, in times of financial crisis.