Essential Tips for a First-Time Personal Loan
A personal loan is the best type of loan which people consider at the time of pressing financial needs. This loan is preferred over the others because one can use the loan amount for any personal purpose, and it doesn’t require collateral security. It means you can raise funds for any purpose without worrying about mortgaging something precious as security.
The process of applying for the personal loan is extremely simple with less documentation, which is the other reason why anyone can think about this loan to meet extra expenses or fulfilling their dreams. A personal loan makes life simpler by providing you with immediate access to funds.
Having so many benefits, this loan is approached by those as well who never ever taken a single loan in their entire life. If you are also one of them, then you should get proper information about this loan before further process.
Yes, knowing various aspects of any loan is very important if you really want to make it a boon in your life. Have some patience and read the essential tips for getting your first personal loan successfully.
Evaluate Your Needs:
Personal loan looks so attractive due to the easy accessibility and its other benefits. These advantages sometimes become the reason why people end up in so much debt. The flexible payment facilities and low monthly installments make people borrow the loan even if there is no urgent need. People, who think of short-term fulfilments, often get carried away by their urges and desires which are quite unnecessary.
Remember that, you have to repay the entire amount of the loan, that too with interest, through monthly installments. So, ask yourself some questions like “do this need is really loan-worthy?” or “can I go without this thing for some more time?” before applying for the loan. If the need is really urgent, then check the amount you can arrange. Decide your loan amount only after determining all these things.
Check Eligibility Terms:
Checking eligibility terms is very important before applying for any personal loan. Banks determine your repayment abilities by assessing your employment history, your salary, the company you are working for, etc.
If you don’t fit in the eligibility terms of a particular bank, then you can’t get that personal loan for sure. Every bank has different terms so; don’t worry in case you aren’t eligible for one personal loan offer.
Compute Total Cash Overflow:
You should know the total amount that you are going to spend over the loan you are seeking. It means you should be aware of the total expenses that are required to take a particular loan offer before applying for it. Yes, we are talking about the charges which are added into your loan amount at the time of repayment.
It includes the processing fee, your interest rates, application fee, etc. which banks levy upon you. The structure of these charges is distinct in most of the banks. Some banks charge fewer amounts, while others charge more. There are some financial institutions that don’t charge any additional charge except the interest rates. So, do research about these things in advance and choose the offer which suits you best.
Know About the Penalties and Terms of the Loan:
Many people forget to ask about the penalties and other important terms while applying for a personal loan. It happens mainly because the borrowers are more concerned about their loan approval and fulfilling their needs at the time of applying for the loan. In haste, they often forget about such penalties which could later become a problem for them.
You must be wondering which penalties we are talking about? Several banks levy extra charges in the form of penalty. These also differ from bank to bank, but some general penalties are:
- Late Payment Penalties: If you fail to pay EMIs on time and it happens more than once, the late payment penalty is levied upon you. Some extra charges are added into your monthly EMIs as default.
- Pre-Payment Fees: Sometimes, people choose to pay their remaining amount of loan before the expiration of their tenure. But, this isn’t an ideal scenario for banks. So, banks charge some amount of fees from you if they provide the pre-payment facility. This fee is some percentage of your outstanding loan amount.
- Cheque Bounce Penalties: Some banks also collect penalties on the EMI cheques that are bounced.
So, know about all such charges and other important terms before applying for the loan.
Compare the Interest Rates:
You should know that interest rates are comparatively higher in unsecured personal loans due to the absence of collateral security. Banks decide your loan interest rates largely on the basis of your credit score and repayment history. Low credit score means high-interest rates and vice versa.
Still, banks have distinct interest rates and ways of judging a borrower. So, you should visit at least 2-3 banks of your choice to see the interest rates they are offering to you as per your profile. This comparison will help you in getting awareness and grabbing the best possible interest rates on your personal loan.
Plan Repayment Structure Wisely:
In a personal loan, you have to pay the loan amount in fixed installments on a monthly basis; which is also known as EMIs. These EMIs are calculated according to your interest rate and the tenure of loan repayment. You get the right to choose your own tenure from a given range.
You should consider your long-term earnings, monthly expenses, etc. while planning your loan tenure. Don’t select the shorter period just for getting rid of the repayment as soon as possible. Shorter period equals to more amount in one EMI, which can become a problem later. You will have to pay the additional penalty charges in case you won’t be able to pay EMIs punctually. So, think about your monthly earning and decide the loan repayment structure wisely.
So, keep these tips in mind to avail a personal loan successfully!