Are you thinking about taking a personal loan to fund a large payment? You are not alone. A lot of us consider applying for a personal loan whenever we are in need of funds. It can help you make payments for different credit needs like a wedding, planning a family vacation, or renovating the house. The biggest advantage of the loan is that it does not need any collateral and the documentation process is simple and hassle free. When compared to other loan options, a personal loan is the first choice of many and it works to benefit you in many ways. It may seem simple to avail a private finance personal loan but there are several things you need to keep in mind. Here are some tips to help you with the personal loan.
Apply for a loan only if necessary
You should take a personal loan only after complete assessment of the requirements and your existing outstanding dues. You need to keep in mind that the loan will pay for your immediate needs but you will have to make a payment for the next few months without fail. Consider the needs and purpose of borrowing before you make an application. Do not rush the process or proceed with the application without considering the pros and cons.
There is a rise in the number of personal loan companies in the country and they make strong claims. It is easy to get swept away with the loan offer if you do not read the terms and conditions properly. You need to do thorough research before you choose the loan and the lender. Understand the features of the loan like tenure, interest rates, fees, etc and then choose a loan provider that will match with your needs.
Compare interest rates
Never make the mistake of applying for a loan without comparing the interest rates. Since there is no collateral for the loan, the rate of interest might be higher. You can compare the same online and then make the decision. It helps to choose a lender with low interest as it will reduce the overall cost of borrowing and the EMI will be manageable.
Go through the eligibility criteria
The eligibility criteria of different lenders vary and you should be aware of it. Before you narrow down on a lender, you must check that you meet their eligibility criteria. A common requirement is the income and credit score. It will reflect your ability to make the loan repayment. Hence, higher the income and credit score, the more likely for you to get a loan at low interest rates.
Check credit score
Besides the income, the lender will take a look at the credit score before approving your loan application. A high credit score will boost the chances of getting a loan at low interest rate. Before you apply for the loan, get your hands on the credit report and take a look at it in detail. If you notice any errors, you need to write to the bureau and get them rectified. A low credit score indicates an indication of bad repayment history and lenders will not be willing to disburse the money to you. Hence, you should try to clear the debts and make EMI payments on time to build a solid credit score before you make a new loan application.
Consider the additional charges
When making a loan application, you need to keep in mind that the interest is not the only cost associated with the loan. There are other charges like processing fees, documentation charges and prepayment charges that will add to the total cost of borrowing. Compare these charges when making a borrowing decision.
Compare prepayment charges
It is possible to prepay the loan and close it before the due date. You can do this by paying the full amount or a part of the amount. Only some lenders allow the prepayment of a loan and they allow you to make an additional payment after a specific period of time. You must go through the prepayment terms thoroughly before you finalise on the personal loan.
Keep these 7 tips in mind when applying for a private finance personal loan. You must understand why you need the funds and how you will pay them back. Do not rush the process and take time researching the lenders and loan products. Sign on the loan documents only after you have read them thoroughly. It is also advisable to use the EMI calculator to get an insight into the amount you will have to pay each month. This will prepare you for the monthly outgo and you will be in a better position to plan your finances for the coming months or years.