A personal loan can be your best option for meeting overarching financing needs. You can use a personal loan to cover all and any kind of monetary needs. As it is an unsecured loan, borrowers do not need to provide any asset as collateral which makes it easier for anyone to avail this loan. Also, these loans come in suitable funding value of small to mid-ticket sizes. The repayment tenure is flexible too, which means you can select the tenure as per your financial capacity. Given that one only needs to meet a handful of requirements to avail a personal loan, the advance is easily accessible to a wide spectrum of borrowers. You can simply install a personal loan app to apply for the advance with ease.
Nevertheless, a personal loan is a big commitment that will affect your budget for months. So, though it might be very easy for you to avail a loan, you must consider many facets of it before opting for personal finance. In this blog, discover some of the most important things that you must consider before getting a loan.
10 Things to Consider Before Applying for a Personal Loan
- Do you really need that loan?
A personal loan is one of the most easily available financing options which tempt people to live beyond their budget. People often end up buying the fancier gadget or appliance just because they can easily afford it with finance. But is it really a smart idea to live life on debt. Experts say that if you are calculative about your earnings, savings, investments and debts, then having some bearable debt is not a big issue. But the keyword here is being calculative!
- How Much Should You Borrow as a Personal Loan?
Once you are sure that a personal loan can serve you well in fulfilling your financial needs, you need to know how much you should borrow and for how long. The amount of your loan should be enough to serve your purpose, but it should not exceed your current urgent need. When you check for your personal loan eligibility, the loan amount you are eligible for could be much more than what you actually need. So, don’t get carried away and apply for a large loan, stick to your needs and apply for an amount that suffices your needs.
- Check your repayment capability
Also, another crucial factor to consider here is your repayment capability. The loan amount should be such that the monthly repayment liability is easily accommodated into your monthly income without burdening your finances in any way. If you have existing loans, then you must think twice before adding on another burden. You can use a personal loan EMI calculator or eligibility calculator to determine how much you should apply for as a cash loan.
- The Reason for Availing the Loan
Personal loans, as a general understanding, come with zero restrictions to end-use. This makes them a convenient financing option to access irrespective of the type of financing need. Hence, personal loans are suitable for fulfilling a wide range of personal and professional expenditures, be it wedding, higher education, medical expenses, travel, business expansion, capital introduction to the business, or any other need.
- Consider the uncertainties
Now, while all these financing aspects are suitably fulfilled by a personal loan, it may not be financially prudent to avail a loan. Consider the uncertainties of job loss or job change, another financial crunch or a big opportunity; you might need that pool of finance later. Check your savings and investments and make sure that you have a back-up plan for the repayment plan.
- The interest rate your lender is offering
One of the most important things to consider while applying for a loan is the interest rate at which the lender is offering you the loan. The interest rate depends on a number of factors like your credit score, your monthly income, your employment brand and stability, the amount of your loan and the tenure you are choosing. Always remember, the lesser the interest rate, the better it is for you. So, before finalizing your loan, compare the interest rates offered by different lenders.
Another thing that you need to check is the overall price that you are paying for an item. Suppose you are buying a mobile worth Rs. 50,000 on loan. But after adding the loan interest the price of the mobile rose to Rs. 65,000. Is it still worth buying? Always make these calculations before availing a personal loan for your expenses.
- The fees associated with the loan
Loans are financial instruments that come at a cost. The lender gives you the requested amount in return of an interest. They also levy certain fees like processing fee, verification fees and, loan application fees on your loan. You must consider these charges before finalizing your lender.
In addition to this, you should also check the penalties and other charges associated with the loan. In case you miss an EMI, if you don’t maintain enough balance in the account for auto-debit or for any other reasons if you don’t pay the EMI on time, the lender can charge a penalty fee. It is important for you to know how much is this penalty fee? Though ideally you should be making all your payments on time without miss, you should be well prepared for all situations.
- Your Credit Score Suitability
When you opt for a personal loan, one of the primary things that your lender will check is your credit score. A credit score is a three digit score that depicts your creditworthiness. A poor credit score says that you have been irresponsible towards your dues and bills. This marks you as a risky borrower. The lender might reject your loan application or offer you a loan at a much higher interest rate. Whereas, a high credit score marks you as a responsible borrower and perfect customer.
Before availing a loan, it is also important for you to consider how it is going to impact your credit score. If you have multiple loans running then you must either close some of them by paying off the remaining balance or you shall wait for the existing loan tenure to complete. Adding on to your loan burden might result in missed payments and defaults which will negatively impact your credit score.
- Your Eligibility Fulfilment
Applying for a loan without checking your eligibility might result in loan rejection. This will also impact your credit score negatively. Thus, before applying for a loan you must check the eligibility criteria listed out by your lender. The eligibility criteria differ from lender to lender. So, you must check with multiple lenders before making your final decision.
The eligibility criteria mostly highlight the age, income, financial stability, credit score and nationality. You can download a personal loan app and check the eligibility criteria and loan eligibility with ease.
- Availability of All Documents Required
Another very crucial thing that you must check before applying for a personal loan is the availability of the documents. Though you do not require pile of documents to qualify for a personal loan, you will have to submit the ID proof, address proof, income proof, employment proof and recent photographs in the format as requested by the lender. Make sure you have the documents handy in their digital form.
Once you have considered all these aspects, you can proceed to apply for a personal loan with your selected lending institution. It can be wise to apply for the advance through a personal loan app as it is not only convenient and accessible but also brings about loan processing and approvals quick. Typically, an eligible candidate can receive approval for the cash loan in as short a duration as a few minutes of application only with these apps. This makes meeting emergency financing needs possible and saves you time too.