Personal Loan is a kind of unsecured loan that helps in meeting any kind of immediate financial needs. It is the form of credit that can help you in purchasing household items or managing other things like marriage expense, Home Renovation expense, small business set up or expansion etc. Financial Institutions or Banks do not require collateral however, an individual must consider several things before taking a personal loan.
1. Purpose of the Loan: Borrower should first understand the purpose of the loan. An individual should ask himself several times before applying for a loan, whether he should apply for a loan, or use the savings or postpone the purchase. If delay is not possible, then calculate the exact amount of the loan required.
2. Loan Eligibility: When you apply for a loan, lenders do check your credit score, income, affordability etc. and this depends on the loan value. You can find your eligibility on many websites of the leading financial companies. You can also use EMI calculator and check the EMI amount, Loan tenure and interest based on the loan amount.
3. Overall cost of the loan: Borrower needs to check the cost of the loan which includes interest to be paid, processing fee, annual fee, late payment charges, pre closure charged and other charges. Please note that apart from interest cost, there are other costs as well that need to be considered before taking a personal loan.
4. Consider your needs, not loan Eligibility: Always apply for a loan amount which you need, do not consider the amount which is offered to you at the time of borrowing. Many a times, you receive calls or emails from your banks or any other financial companies which offer you a loan amount which is not more than what you need. Why do you want to pay interest for the loan amount which you don’t need?
5. Repayment Capacity: Before availing a loan, do assess yourself and find out whether you will be able to repay your monthly instalments or not. In case, you feel that you are not in a position to repay your EMIs do not take a loan. Failure to repay your EMIs will result into late payment charges and an impact on your credit score.
6. Value Added Services: While offering Personal loans, banks do pitch in their Add on offers or services such as Insurance Plans or any other plan. Please make sure you understand the complete benefits of the service and you will opt for the service only if that is helpful to you.
7. Discuss with your Friends and Family members: When you have a cash crunch, do discuss with your friends or family members to lend some money. However, make sure you return the money as promised. If not returned or if your delay in returning the money, you might have conflicts in your relationship or friendship.
It is very important to manage personal loan carefully and if not managed properly, you will have an impact on your credit score. Before you take any decision to avail any kind of credit, your credit score will be considered. Any impact on credit score will have an impact on your future ability to apply for personal loan.
There are many companies offering personal loans these days through different communication channels. You might have received multiple calls, SMSs or emails explaining different loan offers. Always check the loan components like Loan term, Interest rate, Costs involved & terms and conditions etc. carefully and do not fall into any kind of debt trap.