Things to Consider Before Taking a Personal Loan
It’s common to receive messages on your phone tempting you with the promise of easy access to personal loans. However, these messages are often sent merely to grab your attention.
It’s important to remember that you should only consider taking a personal loan if you have a genuine need for the funds, otherwise it’s best to avoid taking out a loan unnecessarily.
If you are facing a financial crisis and urgently need funds for a specific purpose, then taking a personal loan can be a viable option.
It is important to be prepared to deal with unexpected expenses when savings are insufficient in proportion to high expenses and income.
Unexpected expenses can arise from various sources such as holiday trips, school and college fees, marriage expenses, increased household expenses, or unnecessary spending on consumer goods, and can lead to a financial crisis.
Here are five important things to keep in mind while considering a personal loan. Check them out in the slider below-
Check CIBIL Score
Before applying for a personal loan, it’s important to check your CIBIL score. The interest rate on a personal loan is determined based on your ability to repay the loan.
If your savings are lower in proportion to your expenses, the interest rate on the loan will be higher.
A higher credit score can result in a higher interest rate, while failure to repay the loan EMI can negatively affect your creditworthiness.
Check How Much It Will Cost to Get the Loan
The bank determines the rate of interest on a personal loan based on the annual period, which means that if you repay the loan before the scheduled time, the bank may charge a prepayment penalty.
Some banks may waive the prepayment penalty for the first payment, but it’s important to keep in mind that the bank takes into account the annual cost of the loan.
Check Processing Fee First
Processing fees are charged by banks for processing your personal loan application. The competition among banks leads to a variation in the amount of processing fees charged.
Private banks usually charge higher processing fees than public sector banks.
Processing Fee is May Not Applicable During Festivals
Many banks offer waivers on processing fees during festivals or other occasions, which they advertise to attract customers.
It is important to research and compare these offers before applying for a personal loan to make the most out of them.
Don’t Let the Burden of Interest Grow
It’s important to take a loan only as much as required, as taking a larger loan can increase your EMI and loan repayment period, leading to a higher interest burden.
Personal loans are often considered to have the highest interest rates in the financial sector. They can be secured or unsecured, with fewer document requirements compared to other loans.
However, banks may charge interest rates as high as 24 percent per annum based on the borrower’s savings position. It’s worth noting that the interest rates offered by different banks can vary.
