Not everyone is fortunate enough to have enough funds to meet financial needs. Many people, at some stage of their life apply for personal loans to finance certain events such as medical emergencies, weddings, vacations and even to make credit card payments.
For those who are unaware, personal loan is an unsecured loan provided by financial institutions to borrowers, on the basis of their credit history and ability to repay it with their personal income. There is no security or collateral against personal loans. If you are planning to take a personal loan, then here is our personal loan guide with 5 important things which you should consider while taking a personal loan.
Personal Loan Guide: 5 Things You Should Consider
If you decide to take a personal loan, keep the following points in mind to avoid facing trouble in future.
1. Amount Of Loan
Personal loans are easy to get but are really expensive to pay off. Do not take personal loan unless it is for some emergency or a fruitful purpose. Determine the amount of loan which you need to meet your financial needs. It should be under your ability to repay quickly without much burden. Besides your capacity to repay, the loan amount depends on several other factors like your personal income, your occupation etc. The amount you pay for personal loan each month, should not be more than 10 percent of your monthly salary.
There are plenty of banks which offer personal loans in India. It is advisable to do proper homework before applying for a personal loan in a particular bank. Different banks may have different rates of interest for loans. Research, compare and find out the bank where you can get the best interest rate.
3. Avoid Too Many Personal Loans
Try not to take too many personal loans as it shows your credit hunger. Also, it will impact your credit history negatively. Banks report all your financial activities to CIBIL. In order to save yourself getting a bad CIBIL score, it is recommended to keep number of personal loans to minimum.
4. Loan Term
Loan term usually lies between 1 to 4 years. It depends on the bank from which you are talking up personal loan as well as on your occupation. Try to keep your loan term short. It should preferably be 1-2 years. The loan term of a personal loan may also be a deciding factor for the interest that you pay against the loan. Interest and loan term are related to each other. Longer the tenure of loan repayment, higher will be interest rate.
5. Penalty & Other Costs
There are penalties and additional costs like late payment charges, prepayment charges and processing fees etc. which you may be required to pay. Different banks may charge differently. So, you must learn about such charges before finalizing the bank for taking personal loan. And most of popular banks offers personal loan balance transfer to reduce the burden of existing loans.
Also Read: 6 Things To Remember While Closing Home Loan