Whether it is a high-end purchase or an instant exigency, a personal loan is an easy and fast way out. However, staying prudent when availing loan, whether a 2 lakh loan or a 50000 loan, is important as it is a big-ticket commitment that you must meet honestly.
Listed here are the top ten personal loan rules that you must ensure to remember while borrowing:
Borrow just what you need
Even if you get the approval for a big-ticket loan amount, ensure to control your urge to borrow. Make sure to opt for just the amount that you can repay easily. Repaying any loan is a more difficult task than availing and more costly even. As the rule of thumb, your overall monthly loan repayment proceeds must surpass 40 percent of your monthly income.
Keep your loan repayment tenure as per your repayment capacity.
While opting for a longer repayment tenure may appear tempting as it reduces your loan EMI. However, this turns out to be extremely costly in the long term due to the additional interest that you continue paying. Try and keep your loan repayment tenure as short as possible.
Make regular and timely repayments.
The repayment pattern of your past loans decides your credit score. Ensure to always timely repay your loan. Doing so will help to maintain a strong credit history. This also assists you in getting future loans with ease at a favourable rate of interest. So, as per the thumb rule, pay your full EMI amount before or by the due date.
Do not take a personal loan for your investment.
Do not use the borrowed funds to splurge or invest. A personal loan is an unsecured credit option, and hence it comes with an extremely high-interest rate. Even if your overall investments have an assured result, they will not be able to match up with your personal loan interest rate. On the contrary, investments having a high return usually depend on the market, which poses a high risk.
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Do not conduct multiple personal loans.
In case you opt for the second personal loan without closing your current loan, credit bureaus will view you as a credit hungry individual. Multiple loans enhance your debt and impact your score negatively. However, in case you have multiple loans, it might be an excellent idea to opt for debt consolidation by availing of a single big-ticket loan at a competitive interest rate. This assists in improving your credit score.
Compute your EMI before availing loan
Before availing of a loan, if you know the EMI amount, you will get a good understanding of whether you will be able to manage your finances. Nowadays, most lenders have a personal loan EMI calculator on their site. This tool can be used to figure out the correct loan amount combination, repayment, and EMI amount as per your repayment potential.
Assess the fine print
While availing personal loan is easy, there is considerably more to it that you must know. Instead of conducting an instant casual loan contract reading, ensure to take time to read every clause and the fine print. There are various terms associated with every loan, and you must understand what exactly it is before signing it.
Shop around
Before you make up your mind, ensure to go through certain websites to know the rate of interest that they are offering. Ensure to find out the details such as prepayment charges, processing fees etc. Accumulate the info, compare them, and decide.
Prepay the loan if it is possible
This requires little deliberation. When prepaying your loan, save the extra interest you require to pay. However, most banks incur prepayment charges. Compute the penalty you may require paying and the savings in your interest cost. If it is profitable, go ahead to make your prepayment. Prepayment lowers your debt and assists in enhancing your credit score.
Consider availing insurance
In case of any big-ticket loan, it is better you purchase a loan protection insurance cover also. This covers your liability in the case of any unfortunate incident which saddles your dependents with payments. Various banks also offer insurance to cover job loss, disabilities, accidents, and unfortunate death. You may want to consider purchasing loan protection insurance to become stress-free.
Note
There are many that consider personal loans to be an instant fix solution in the case of a financial emergency, and your savings are inadequate to mitigate the instant requirement. Regardless of the reason, you can get a personal loan that has an attractive rate of interest and flexible repayment tenure. Listed here are some crucial considerations that you must consider when applying for a personal loan.
Why do I require a personal loan?
Have you started with your plans of how you want to spend your fund? Give yourself some time and think if you really need a personal loan. If you are considerably clear regarding the purpose of availing of a loan, you can save yourself from availing more money than needed.
Will I qualify?
You are determined that you require funds through a personal loan, but have you given a thought to the chances of your personal loan getting approved? Before you make your loan application, ensure to make a judgement about your eligibility and financial activities. Is your credit score good? Do you pay the utilities on time? Is your monthly income good? If you do not have an excellent credit score or do not mitigate the necessary eligibility conditions, ensure to wait for a while before you apply for the personal loan because a failed application is recorded in your report and can create a negative impact on future loan applications.
How much will I avail?
Being an unsecured credit option, sanctioned personal loan proceeds would be impacted by several parameters like salary, present liabilities, and current credit score. Usual personal loan proceeds that are extended to you may range anywhere between 50 and 60 percent of your annual income.
How much can I afford?
How much loan you can afford to repay is an important aspect to consider. Here is how you can review your affordability:
∙ Review your cashflow
∙ Know how much funds you can allocate to cover up your payments on your new debt
∙ Know if there is any fund left after paying your monthly bills
∙ Explore the crucial areas where you can simply cut your costs and save money to add to your monthly instalment payment
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