personal loans

7 Things to Check Before Applying for a Personal Loan

For many people, opting for a personal loan is a quick fix to all financial problems. In India, thanks to the concept of digitisation, applying for personal loans has become deceptively easy. If a person is having insufficient savings and he/she needs a fast solution to meet the ends, personal loans can be a great option. 

With this type of loan, one can meet expenses like funding children’s education, planning a dream wedding, home renovation, etc. It is also to be remembered that personal loans come with flexible tenure and reasonable interests. There are a wide number of financial institutions available in the market that can confuse everyone. So, individuals must check all the personal loan schemes before applying for one. A few are listed below. 

Loan amount 

Before availing of a loan, it is important to figure out how much finance is required for the purpose. Based on the loan amount it can be calculated how much a person can repay. The lesser the loan amount, the easier it will be to repay. Only under emergency conditions, it is advisable to take an essential amount, while making alternative arrangements for the rest. Here is a way one can check the affordability: 

  • By analysing monthly cash flow. 
  • Sort out how much money you can contribute to payments on new debt.
  • Figure out if there is any remaining money after meeting other expenses like paying monthly bills. 
  • Find out areas where there is a chance of cost reduction, thus you can save money to add the monthly instalment payment or EMI.  

Interest rate 

Interest rate is an essential factor that helps individuals decide their required loan amount. Many private banks offer loans with a tenure ranging between 12-60 months and the interest rate starts at 10.99% p.a. The interest rate that you are charged from the banks depends on various factors. This includes age, credit score, employer, repayment ability, etc. Furthermore, the interest rate imposed impacts your EMI. The higher the EMI amount, the more it will get hectic for you to repay. Nowadays, there is a wide spectrum of lenders offering customers a wider range of interest rates to choose from, contrary to the traditional settlements. 

EMI amount

Equated Monthly Installments or EMI is one of the important factors that help customers to decide upon the best personal loans. It refers to the amount that one pays every month to the lender, consisting of a portion of the principal amount as well as the interest amount. When an individual takes a loan, it is understandable that it needs to be repaid in full. Missing a single EMI can bring consequences to the concerned person’s credit score. Thus, before availing of a loan calculate the approximate amount that you may have to repay as EMI. For that, you can use the EMI calculators available online. 

Repayment tenure

Another thing to check before applying for a loan is the repayment term. The repayment tenure is the time period over which a person makes his/her monthly instalments. The longer the repayment tenure, the shorter is the EMI amount. However, a long repayment period also indicates a higher interest rate which is why it is recommended to keep the tenure as short as possible. Also, it is important to ensure that one is in a position to pay the EMI amount without fail. 

Prepayment option 

When a person comes into a lot of money and he/she has loans, running at the same time, they want to clear off all the debts naturally. However, not all lenders offer customers the chance to foreclose their loans in advance. Moreover, if they do so, it is usually after a  number of EMIs has been paid and there will be penalty charges as well. Hence, if you want to foreclose your loans, consult with the lender first. 

Lender’s credibility

Another important thing to consider before applying for a loan is the credibility of the lender. Earlier, banks were the only financial institution from where people could borrow money without any worry. With changing times, several other financial agencies have come into existence that offer loans quickly and conveniently. Whichever lender you choose to borrow from, make sure you check their credibility. 

Time taken for loan disbursal 

Most people need loans during emergencies. In such circumstances, waiting for days to get the required loan approved and then the amount disbursed will not be of any help. Therefore, before applying for a loan check the time taken for disbursal. While existing customers of some banks are approved for personal loans in seconds, the non-customers may get the same in less than 24 hours. 

The decision to apply for a personal loan is entirely yours as you may find yourself in a situation where the loan is beneficial. Before applying for one, consider the above-mentioned factors. Furthermore, consider what works for you the best and your financial condition rather than choosing a popular scheme. 

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