A personal loan is one of the most sought-after loans by people. Its affordability, easy disbursal process and quick processing time make it one of the most popular loan options available.
Personal loans can be used for various purposes, such as home renovation, buying a car, buying a two-wheeler, funding a wedding, etc.
This leads to a question – should we bother about the reasons for which we want to raise a loan in order to pay it back on time? The answer is yes, since any kind of loan should be used for productive reasons and not for carrying out unnecessary expenses.
Thus, before starting the entire process, it is important to consider a few things.
Here are 5 things that one must consider before taking out a personal loan
#1. Lack of Clarity
One of the most common mistakes applicants can commit is not being able to differentiate between necessary expense and lifestyle-related expense before taking out a personal loan.
So, it doesn’t make sense to pay high-interest rate for lifestyle expenses that can be avoided. However, to cater to immediate medical emergency or wedding expense, such a decision becomes a necessity.
#2. Lack of Research
Before taking out a personal loan for your needs, it is imperative that you conduct a thorough research about it. This would include the interest rate offered, loan tenure, repayment option, processing fee, late payment charges, pre-payment charges, etc.
So, applicants should go beyond the teaser ads offered and thoroughly research about the loan they want to take out before making the final call.
To many, longer loan tenure option with lower EMIs seem like the easier option. However, it may not be a holistic and aggressive approach.
Generally, shorter tenure and shorter-term loans are more cost effective on account of their lower and absolute payment option and requirements. However, if you are short on funds, then a longer tenure with lower EMI is an ideal option for you as it won’t burn a hole in your pocket.
#4. Know Your Credit Score
It is important for you to maintain a financial discipline. This helps in the long term in maintaining your credit score and financial credibility. This is important because if you have a good credit score, then it improves your chances of getting approved by financial institutions for loans. An applicant with a good credit score could become eligible for a pre-approved personal loan.
#5. Understand terms and conditions
It is important to read the fine print before signing any loan-related document. As a potential loan applicant, you must understand all the terms and conditions associated with a personal loan before taking it out.
Most of the times, pre-payment of loans or pre-closure is allowed without a fee, so ensure that you have all the information at your disposal before you enter a legally binding contract with the financial institution.
So, make sure you have a strong credit score by making all the payments on time and by ensuring you clear any outstanding dues. When it comes to money, it is important to make the right decisions. So, consider these 5 things before taking out a personal loan.