Personal Loans are handy for a variety of purposes such as the renovation of a house, buying the latest gadget, going on vacation, funding a wedding, paying for a medical emergency, etc. As a result of this end-use flexibility and minimal documents personal loan can help you with almost any immediate fund requirement.
While it is easy to apply for an unsecured personal loan, it is essential to have all the relevant information beforehand. Primarily this is because it helps in improving your chances of approval for the personal loan. It is always suggested to take a personal loan only when you are in urgent need of money, and you do not want to provide any collateral against it. The following are 5 key things you need to consider when applying for a personal loan:
Know your credit score
Credit score is considered as one of the most important factors when choosing a personal loan. Credit score signifies your creditworthiness which reflects your ability to repay a personal loan. Credit score ranges from 300 to 900.The closer you are to the 900 mark, the higher are your chances to avail a personal loan. Applicants having a lower credit score have higher chances of getting their application rejected. To maintain a good credit score, it is crucial to pay all the dues on time and lower your outstanding debts.
Compare Interest Rates
As personal loans are unsecured loans, the lenders charge a higher rate of interest on these as compared to secured loans such as home loan or car loan. Currently the interest rate for personal loans starts at 10.50% however, a higher rate may be offered to you depending upon various factors such as your credit score. It is thus necessary to compare the interest rates offered by different lenders to avail a lower rate of interest. By comparing offers from different lenders you are in a position to select a personal loan at a lower interest rate and making the repayment of your loan easier.
Know your EMI Payouts
Before you avail a personal loan, it is very important to look how much you need to pay every month to repay your loan. This is known as EMI or equated monthly instalments. You can use an EMI calculator to find out how much your monthly pay out (EMI) would be for your chosen loan amount, . Your EMI should be such that it doesn’t strain your finance, but opting for too low an EMI can lead to a higher interest payout over the loan tenure. Applicant’s repayment capacity is diagnosed by the lender itself at the time he/she applies for a loan. Thus using a personal loan EMI calculator can help you determine the suitable loan amount for you.
Know processing fees and other charges
You may be unaware of the fact that personal loan comes with additional charges (apart from interest rate) such as processing fees, foreclosure charges, late payment charges, etc.. It is suggested that applicants should know these fees and other hidden charges before they apply for a personal loan. Currently processing fees may be up to 3% of the loan amount sanctioned however many lenders have lower fees.
Know pre-payment related charges
Prepayment or foreclosure refers to paying off a personal loan before the completion of its original tenure. Most lenders charge a pre-payment penalty in such cases. This charge is applied because early repayment of a personal loan may result in lower interest earnings for the lender. Here, it is advisable to take a loan which comes with low or even zero foreclosure charges. Also keep in mind that not all lenders allow the option of foreclosure so do ensure you check with your prospective lender beforehand.
Even though personal loans are one of the best options for tackling a financial emergency, it is advisable to take a personal loan only if it is needed. Moreover always make sure that you read all the terms and conditions of a personal loan before signing the loan document to prevent unpleasant surprises in the future.