A personal loan can help you meet financial shortfalls without feeling the strain. Use the money to fund a wedding. Get the funds to cover an emergency overseas trip. Or get a personal loan to carry out long overdue renovations in your home. Feel free to use the funds however you like. But consider these factors before you apply for a personal loan:
- Your need for a personal loan
Before you do anything, ask yourself the big question: Do you really need the loan?
Personal loans are easy to get. It might be tempting to get a loan to fund a wardrobe overhaul or buy the latest gadget. But shopping on borrowed money is not always the best option.
If you apply for a personal loan, do so for the right reasons. Keep in mind that you will have to repay it. So, think through your repayment strategy beforehand.
Make sure to figure out how much you need. Never borrow more than you require, even if you are eligible for a higher amount.
- Your eligibility for the personal loan
The lender will determine your eligibility for the personal loan. Your eligibility depends on your income and liabilities at the time of application
Never apply for more than you are eligible for. By doing so, you would set yourself up for loan rejection. Do you need more than what the lender is offering? You could take a joint personal loan with your spouse. Together, you might be eligible for a much larger amount.
Also, check your credit score before you apply. Lenders prefer individuals with CIBIL scores of 750 and above. If your score is lower, focus on improving it. The likelihood of loan rejection increases if your CIBIL score is below 550. Exercise financial discipline and pay all your bills on time. Pay off any outstanding debt before taking on a new liability. A good CIBIL score improves your chances of getting a personal loan on favourable terms.
According to this source, lenders prefer borrowers with steady incomes. Those in secure government jobs and professionals like doctors tend to get preference.
- The interest rates and charges you will incur
Some borrowers apply for loans before checking the interest charges. This is a mistake. It is better to do your due diligence first. Check lender websites and informative articles. Call the customer care numbers of different lenders to make inquiries.
Suppose you are looking at online personal loans. You have found out that the interest charges start from 12.49%. Your research should not stop there. Inquire about the processing fees, payment bounce charges, and late payment fines too.
Repayment flexibility is also important. Find out if there is a prepayment penalty. If you are planning to repay the loan early, do the math. Check if there are foreclosure fees or any payment restrictions.
- The loan tenor you should choose
You need to crunch the numbers before settling on a loan. Otherwise, you could end up with a heavy equated monthly instalment (EMI). Jot down your income and expenses. Figure out how much you can afford to pay every month. At this point, take the help of an equated monthly instalment (EMI) calculator. These are available on any lender’s website these days.
Start by keying in the loan amount, the interest rate, and the tenor. The calculator will give you the resulting EMI amount. Vary the loan amount and the tenor to get different answers. Finally, settle on a loan and tenor that results in an affordable EMI.
Keep in mind that a very short tenor might cause you undue financial strain. But a longer tenor results a higher interest pay out.
- The right lender and personal loan for you
The right loan and the right lender are important. For this, you need to shop around. Get to know about the different options available. Look at personal loans online and offline. Make sure to read the fine print and clauses. You could also check customer reviews. Knowing about the experiences of other borrowers could be helpful. You could then make an informed decision.
How do you zero in on the best personal loans? Note down the pros and cons of each lender and product. How long is the disbursal process? Would you get online loan support? How much would it all cost you? Run a detailed comparison before making your final choice.
Once you have done your homework, it’s time to apply. Most lenders today allow you to apply online and at their branches. And lenders like NBFCs disburse the funds within 24 hours of loan approval. So, you can put the money to good use right away.