Personal loans come handy during various kinds of financial emergencies. The ease and speed in availing funds through this loan makes it a popular choice for many. Since a Personal Loan doesn’t require a collateral, its interest rate may be higher than that of a secured loans.
Take a look at few crucial pointers that you need to know before availing a personal loan.
This loan is offered by both banks and non-banking financial institutions (NBFCs). You must meet the age and income eligibility to get a loan. For example, some banks may need you to be above the age of 18, or earning at least Rs. 25,000 per month to be eligible for a loan. Your Credit Score will be another important criteria based on which your loan would be approved. It makes sense to check if your credit score is healthy before applying for a personal loan.
Choose The Lender
Do not go for the first bank that approached you for a personal loan. You should also not avail a personal loan from your bank just because you have an account there or a long relationship with the bank. The correct way would be to do a comparison of all the banks either through online financial aggregators or by visiting the bank branches and websites. You should compare on all aspects of loan, including processing fees, interest rates, foreclosure charges etc.
This will be the most important aspect of your personal loan, based on which your instalments will be decided for a specific tenure. Since these loans come without any guarantor in most cases and without any asset lockage, the interest rates are higher compared to a home loan or a car loan. Usually, the interest rates charged by banks range between 11 to 16% on an average, whereas NBFCs and other lending institutions may charge a higher rate. It’s always good to scan the market to know what’s on offer.
Before you apply for a personal loan, be clear about the amount you want to borrowing. Since personal loans are easy to avail and are often disbursed quickly, do not go overboard with the loan size. Do not borrow beyond your repaying capacity as the instalments for this go will go from your monthly income only. It is wise to assess your needs in advance and go to a bank with a clear figure.
Penalties, Processing Fees And Other Charges
There is a possibility that you may pay back larger portions of the loan in due time after your urgent need is addressed. Before choosing a lender, you should check if there is an option to part-pay or pre-pay any of its installments or even bigger amount to reduce your liability. While some banks allow it after charging extra as a way to get compensated for the interest they will lose out on, some others allow it for free but have limits for it. You should also check the processing and associated fees a lender is charging for offering personal loan. You may also shell out foreclosure charges if you wish to close the loan before the tenure ends.
Don’t Ignore The Fine Print
It’s also important to pay attention to the fine print while availing a personal loan. Some important bits of information about the terms and conditions are in there. Reading the T&C would make you aware about the full schedule of charges applicable on the loan which the lender may or may not have communicated verbally to you. Being aware will save you from any shocks later.
A personal loan works as a remedy for your urgent money needs, but do remember that it’s absolutely important to repay the loan along with interest and other charges. Like any other loan, do assess your repaying capacity before going for one.
(The writer is CEO, BankBazaar.com)