The lending process has evolved to a great extent, with several options available now for the borrowers to meet their financial requirements. While home loans, and loans against property and the gold loan are classified as secure loans; the personal loan is one of the most commonly availed unsecured loans. The loans are unsecured because borrowers need not pledge any collateral to avail finance and meet the lending institutions’ qualifying criteria. However, one should consider the best practices of the personal loan before applying.
Here are eight things to consider while taking a personal loan:
- Self-assessment: One of the primary components of a personal loan checklist should be assessing whether you need the loan. While personal loans can be the most straightforward form of loans, they carry higher interest rates than gold or LAP. However, if you think that there are no other sources to secure funds or are sure about the monthly EMI allocation, you can very well opt for personal loans.
- Pre-qualified: Banks and NBFCs find the loan application form suitable by assessing the borrower’s profile based on the income capacity and creditworthiness. Lenders would determine your creditworthiness based on previous debts and the repayment phase. A credit score is a strong indicator of a borrower’s repayment capacity and is typically between 300-900. A higher score would mean that the lenders would be ready to provide loans at a lower interest rate with faster approval.
- Visit the lender’s website: If you think you have a better credit score, the next step would be to use a personal loan interest calculator available online to know your rates and decide accordingly. Note that the lenders have made all information online itself to limit interaction at the branch. Hence, you can understand the lender, the competition, compare lenders through dedicated review websites, and fill the online personal loan application.
- Read the terms & conditions carefully: Let’s assume that you use the online EMI calculator to ascertain the interest rate, tenure, amortization, monthly EMI, etc. But what about the late payment charges, foreclosure charges, processing fees, etc.? It would be best to read the fine print available with the lender to know all the details about the personal loan before signing up the dotted lines in the application form.
- Deciding on principal amount: A principal loan amount is the primary component of the lending process and is critical from the borrower’s perspective. It would help if you decided on a loan amount that is optimal enough to meet the requirements and not hurt the repayment phase.
- Ask for a good deal: A lower interest rate with flexible tenure makes up for an excellent personal loan deal. If you have a strong credit score, you can negotiate with the lender for better loan deals.
- Plan your repayment phase: Although it might sound challenging, having a clear repayment strategy is essential before applying for a loan. You should consider your income capacity and near-future financial exigencies for the repayment strategy.
- Check references: Word of mouth references are excellent when it comes to availing personal loans. Although you can use the personal loan interest calculator to know the loan details, you can ask existing customers of the lender for reviewing the loan and service.
Personal loans can be useful if one can manage the repayment phase well and is clear about the finer details of the lending process. Note that timely repayment can also improve your credit score, thus strengthening your creditworthiness.