The main reason why personal loans are so well-liked is flexibility. It offers versatility in terms of use, tenure, and repayment. The availability of these loans from financial organizations without the requirement that you pledge any assets as security has also caused a rise in the number of people turning to personal loans in recent years.
When you need funds urgently and without worrying about any collateral you can get a Personal Loan. Personal loans are very popular. However, the borrower must have complete clarity about the Personal Loan. This is important so that you do not face any unpleasant surprises. It may take time to examine all the terms and conditions in detail, but it is an important step towards a healthy financial future.
However, before applying for personal loan, you need to ask yourself some questions which are given below.
- Why Do I Need A Personal Loan?
If you are faced with an urgent requirement for funds to fulfil some of your immediate needs, a Personal Loan is the best option. Borrowing funds from a lender means that you are bound by certain terms and conditions. That means you must put a portion of your future earnings into meeting your monthly debt obligations. If your income is limited and you do not see any improvement in your financial situation in the future, then it’s not a good idea to apply for a Personal Loan as it will put pressure on your budget. - What Other Options Do I Have?
Before you finalize your decision to get a loan, consider the options available. If you are expecting a festival or performance bonus from your employer, it is better to wait. Similarly, if your investment is reaching maturity and you will receive a large sum out of it, use it instead of taking a loan. - What is the Importance of My Credit Score?
Financial institutions evaluate your credit report. If it is in bad shape, they will refuse to give you a loan. And if not, they will charge you a higher interest rate to cover any potential default risk. Therefore, reviewing one’s credit score should be the first thing to do before applying for this loan. - Do I Have Any Documents Supporting My Income?
In India, individuals earn through various sources. However, they do not have any documents supporting their income. Financial institutions are not only interested in your income but are also keen to check if you are consistently earning.
If you are new to your job, spend some time at your existing organization and don’t forget to request your employer to share the salary slip to your email address every month. - Do I Need to Add a Co-Applicant?
It entirely depends on your credit profile. If your income is insufficient to meet the lender’s minimum eligibility criteria, adding a co-applicant may work in your favor. However, if you do, keep the following two conditions in mind.
The co-applicant should have consistent income and a clear history of debt repayment.
They are equally responsible for paying EMI.
- Is the EMI Affordable?
To find the answer to this question, use the Personal Loan EMI calculator. It will help you determine the EMI value. In addition, you can use this tool to compare different lending institutions. - How to Get Assurance Regarding the Lender
Many lenders offer Personal Loans at attractive rates and attractive features. Sometimes it is tempting to accept a Personal Loan using an instant loan application from your mobile phone that claims to offer the best possible deals. But you need to know who is offering you credit. It is advisable to go with a lender registered with the RBI, which has a large physical and digital presence and strong technical support. It is also important to carefully read the terms and conditions before signing any loan agreement so that you know exactly how much EMI you must pay and for how long. - Can I Pay Off My Debt Without Any Difficulty?
To answer this question, review your current financial commitments. Make a checklist of all the expenses. Below are some of the costs that you can’t ignore.
- Child’s education fee
- Utility bill payment
- House and water tax
- Insurance premium
- An emergency fund to cover unforeseen expenses
- The cost of the house
- After deducting these expenses from your monthly income, if you still have 50% of your income left over, proceed with your decision to take out a loan.
- Which Term Should I Choose?
Use a Personal Loan EMI calculator to select the ideal term. The term of the loan is directly related to your interest rate and EMI. When you choose a shorter term, the EMI goes up, but the interest rate goes down. While the EMI decreases in the long run, you will still pay a higher interest component. - Are There Any Other Charges On Personal Loan Application?
Some Personal Loan lenders charge prepayment penalty/foreclosure charges. This is a fee charged by lenders if you want to repay your loan early or transfer the balance of your current loan to another lender. Personal Loans also come with additional charges that are higher than the interest rate. Some of these charges include processing fees, service fees and insurance fees. It is important to check the fee before you sign up. Penalty charges may also be levied in case of check bounce or late payment. - When Will I Need to Keep My Personal Property As Security with the Lender?
This question comes up when you do not meet the minimum eligibility criteria of the lender. As a result, you keep your assets as collateral to ensure that the lender’s funds are not lost in the event of a default.
Conclusion
Getting a Personal Loan to fulfill your diverse needs is always considered one of the best options. But before you opt for it, carefully considering these 11 essential questions is crucial. It ensures that the loan aligns with your financial goals, values, and ability to repay. By making an informed decision, you can avoid unnecessary debt and use the loan responsibly to achieve your objectives. Remember, a well-thought-out loan can be a valuable financial tool, empowering you to take charge of your financial future.
