This year, we saw a rise in the number of individuals opting in for a personal loan. People normally used personal loans to fund a holiday, pay for medical treatment or even use it to renovate their homes. This loan is normally an unsecured one that is taken by a person from a financial institution.
A personal loan is unsecured in nature, you will not be required to provide a collateral to secure your loan. There are various eligibility factors that depend on you receiving your loan, such as employment and credit history, income level, your age, etc. The process of receiving a loan is an easy one. This is due to the fact that there is less paperwork involved and no need for an individual to provide collateral to avail their loan.
While personal loans offer numerous benefits, It’s important to understand that if you default on a payment for your personal loan this can have a negative impact on your credit score.You need to keep in mind the interest rates that come with the personal loan. As personal loans are usually collateral-free, the interest rate on a personal loan is found to be much higher than the ones placed on other types of loans.
The personal loan you receive can be utilized for any financial needs of yours. Lenders cannot restrict or monitor the usage of the funds you’ve borrowed. You can use a personal loan to purchase clothing, fund a holiday, and even spend on a wedding. Usually borrowing a personal loan can be very useful to those going through tough times. Due to an increased amount of loan options that are available on the market today. Choosing the right personal loan becomes a very tough but important decision that you might have to make. As of today, it’s become very important for borrowers to understand loans and their features so that they can choose the most suitable personal loan for them.
This is a step-by-step guide that will help you, by giving you the factors you might need to keep in mind when looking out for the right personal loan.
Choosing the right personal loan can be an arduous task. It is essential to conduct detailed and thorough research, there are many factors you would need to take in to consideration:1.Loan amount
One of the most important factors involves the decision for choosing the right loan amount that you want to borrow. Your needs may be a fancy wedding in Udaipur, a trip to Thailand or even renovating your house. Once you assess what the need for the loan is , then you choose the right amount of the loan, calculate the duration for which you will be taking the loan so that you can ascertain your EMI responsibilities. It is advisable to always compare the various loans offered to you by lenders as it can aid in picking a more budget conscious personal loan.2. Your capacity to repay the loan
It is advisable that you repay the loan amount at the earliest possible time. Some lenders provide a short term for repayment which usually demand higher EMIs, hence leading to a smaller number of installments.
If you default on your loan repayment, it could lead to a reduction in your credit score. This would in turn discourage financial lenders from sanctioning you a personal loan. It is extremely important that you measure your capacity to repay and then decide to go with a loan tenure that works for you.3. Choosing the Right Lender
Personal loans happen to be the most common type of loan that is offered by NBFCs and financial institutions. With an abundance of lenders to choose from, picking the right lender for you can be an overwhelming process. It is imperative that you do your due diligence before you choose the correct lender, to avoid fraud and falling into loan traps.
One way you could avoid these problems is by using an online aggregation platform. On these websites you can look up and compare various lenders, their T&Cs, and their interest rates. These websites will even notify you of the various deals that different lenders offer. It is advisable to choose an established NBFC or financial institution that offers you terms that are favorable.4. A healthy credit score matters
Your CIBIL score is usually a key factor to become eligible for a personal loan. It is important that you check your credit score before you choose to avail a personal loan.
Maintaining a high credit score will increase your chances of getting a personal loan approved. Your credit score also has an impact on the amount of the loan that is sanctioned, including the terms that accompany the loan such as the interest rate and EMI payments.
A credit score that is above 750 is considered to be a good score. Anything below a 600 is considered to be a score that is low. Again the maintenance of your credit score is very important to getting a loan that is favorable to you approved by your lender.5. Take a look at the interest rates
There may be a multitude of lenders who will approach you with different loans that don’t have much to differentiate them other than the marginally low interest rates. Hence it is of utmost importance that you study and compare the interest rates of different lenders before you opt-in for a personal loan.6. Additional costs that you need to be aware of
You need to be aware of the numerous costs that are associated before borrowing a personal loan, such as the prepayment, processing and late payments fees. You need to conduct a thorough analysis and compare the fees that various lenders charge so that you can manage your finances in a more efficient manner.
At the end of the day, you need to keep your financial goals in mind and set a clear budget before you opt-in for a personal loan. As today personal loans are available in abundance on the market. Hence it is important to analyze various lenders , all the costs associated with the loan, read the terms and conditions, and choose a loan that has an interest rate and repayment option that is suitable to you.Disclaimer: The information in this article is compiled from various sources and is an opinion piece only. This is not to be taken as a substitute for professional advice on managing finances, reader discretion is advised.