If you are searching for a financial product that can handle all your financial woes, look for a personal loan. It can cover practically all of your financial needs, whether you need to deal with a medical emergency or pay for your child’s education. However, before applying for this loan, you must consider the factors stated in this article.
Know Why You are Applying for This Loan
Do you know what the most advantageous aspect of this loan is? The lender does not impose any restrictions on the utilisation of funds. However, this does not imply that you are applying for the loan for no reason. You must always have a purpose before submitting your loan application. Lenders are curious as to why you are taking out this loan. The loan purpose has a significant impact on your approval. Let’s look at this from a different perspective.
Assume you require Rs. 5 lakhs to satisfy your basic needs, such as food, utility bills, rent, and so on. Your application will be denied in this circumstance. This is because if you don’t have enough money to meet your fundamental needs, paying off your debts will be nearly impossible.
Check the Loan Amount
It’s needless to accept the loan offer when the funds are insufficient to cover your requirements. Before accepting the loan offer, make sure you are getting what you have applied for.
In addition to that, you must also check your affordability using an EMI calculator. If the EMI is exceeding your budget, you must lower the loan amount. Furthermore, it is also advisable that borrowers should avoid overborrowing. This is because it will lead to a situation where you will end up paying an additional interest amount.
Simply put, both under-borrowing and over-borrowing have a negative influence on your budget in the long run. The former will make you incapable of meeting your obligations, while the latter will put your credit score in danger.
Compare Personal Loan Interest Rates
This is a point that should never be overlooked. You may miss out on some amazing personal loan deals if you don’t compare. This unsecured loan is offered by several financial institutions at various rates. Furthermore, each lender’s process for calculating the personal loan interest rate differs. As a result, comparing the offers is highly suggested. If you are pressed for time owing to a busy work schedule and don’t have time to perform a thorough comparison, take a few minutes out of your day to visit the loan aggregator’s website. These websites will provide you with a general understanding of different lenders’ interest rates, repayment terms, qualifying conditions, and so on.
You must also verify the numerous loan-related costs, or APR, in addition to the interest rate. Although the processing fees and other associated fees are minor, it’s never a bad idea to double-check them and get the best deal possible.
It is just as vital to keep an eye on the repayment terms as it is to keep an eye on the personal loan interest rates. Personal loans are usually available for a maximum of 60 months. But it’s the repayment flexibility that sets one lender apart from the next.
Assume you wish to pay off your debt in 36 months, but the lender has tight criteria that you can only qualify for this loan if you are happy with a 60-month repayment period. You may be wondering why this is a problem and what I will lose if I choose a 60-month term. To find the answer, look over the table below carefully.
|Parameters||1 Year Term||2 Years Term||3 Years Term||4 Years Term||5 Years Term|
|Loan Amount||Rs. 5,00,000||Rs. 5,00,000||Rs. 5,00,000||Rs. 5,00,000||Rs. 5,00,000|
|EMI||Rs. 44,659||Rs. 23,771||Rs. 16,847||Rs. 13,414||Rs. 11,377|
|Interest Payable||Rs. 35,904||Rs. 70,502||Rs. 1,06,491||Rs. 1,43,860||Rs. 1,82,592|
|Total Payable||Rs. 5,35,904||Rs. 5,70,502||Rs. 6,06,491||Rs. 6,43,860||Rs. 6,82,592|
The relationship between your loan duration, EMI, and interest payable can be seen in the table above. If you opt for a longer tenure, you will undoubtedly pay a smaller EMI, but the interest you would pay will be extremely high. On the other hand, if you choose a short term, your EMI will be higher, but the amount you would pay in interest will be significantly smaller.
As such, while applying for a personal loan, your repayment tenure becomes crucial. And given the importance of the above table, you must also look for the prepayment options. Usually, most lenders allow you to foreclose on your loan after the successful completion of the first year of your repayment. You need to pay a small amount as a fee for foreclosing your loan well before its conclusion. The fee is usually charged on the outstanding loan amount.
However, remember, several financial institutions do not allow borrowers to foreclose their loans. And if you come across such a lender, refrain from applying with them.
If you evaluate the aforementioned factors, you have a good chance of getting the best personal loan deal possible.