Things you must know before applying for Personal Loan
More you know about your Personal Loan, the better decision you will make about it and will be able to avoid any kind of hassle in the future once you have applied for it.
Personal loans are like a blessing if used wisely. They can be secured in very less amount of time and that too without any kind of collateral. They are usually meant for urgent expenses and are a great way to manage your cash flows.
They are the perfect solution to pay off that high-interest mortgage amount which is piling up in interest every month, or any kind of medical urgency that one must take care of.
A person may also tend to apply for a personal loan to fund his new business venture which otherwise may result in spending your savings. You can thus be more aware and cautious about your business plan as you need to pay it back to the bank, and usually, you don’t get that much profit in the beginning.
It could be just enough o pay off your small EMI rather than the whole lump sum amount.
Here is a list of items that one must know and take care of before applying for a personal loan.
Be aware of your credit score
A good credit score can make you eligible for a cheaper personal loan which is often available at good bank institutes. However, they look for a good credit score.
With a bad credit score, you may have to look at other avenues for your financing needs. One must investigate the FICO scores which often come with some sort of error which may be affecting your overall credit scores.
Correcting this will also help you get favorable loan terms and cheaper interest rates with safe loans. It often takes around a period of 30 days to submit the corrections and getting them into effect by the bureau.
Understand the charges associated with your personal loans
You may be needing an amount of one lakh rupees however you may end up getting only 90 thousand rupees. To your surprise, the extra amount was deducted as a part of your loan application and processing fee.
It’s almost 10% of your loan amount. So, must know about these fees and must be able to negotiate with your bank or financial institutes to get a waiver over them.
Looking at your good credit score and repayment ability, often banks provide you with a waiver on these charges especially if you are a customer of that bank and have a working account with them.
Also, ask them the ways you can make your loan amount cheaper. Some of these ways are discussed in our other Blog – How to reduce your EMI?
You may apply for as much amount in the personal loan as possible however, one must know his or her capability to pay it back as well.
You must also understand that longer is the tenure of your loan amount, more interest you are paying on that amount.
You must also evaluate the monthly payments that you can easily pay off and if possible, can you pay back your loan amount early without any kind of penalties.
Like if you have a fixed deposit say maturing in the next three months, and you want to pay off the debt amount then looking at your financial position, would that be possible.
In case, yes, will there be any kind of charges on pre-closure of your loan? You must discuss all these scenarios with your lender before applying for a loan.
Also, ask your lender, what would be the penalties, in case you miss an installment. Knowing all these things will help you to get a cheaper personal loan and make a better financial decision.
Know the type of personal loan
The personal loans may come with two kinds of interest rates, one is the fixed interest rate, and another one is variable interest rates.
In fixed interest rates you tend to pay the same amount of interest every month, however, in variable interest rates, you tend to pay as per the interest rates applicable due to fiscal policies set by the RBI.
This has both advantages and disadvantages to it. If the variable interest rate reduces, then you tend to pay off less amount o interest in that year however if it increases, you pay more amount as part of interest rate.
One can check the trend and various government-based decisions to check which one would be more beneficial for him and opt for the one.Also, another way to get a cheaper personal loan is to opt for a secured personal loan.
In an unsecured personal loan, you don’t have to pledge any collateral, so lender’s risk is higher, and thus you tend to get to pay higher interest rates however under the secured personal loan, you secure it with collateral, and therefore your payable interest rates also reduces.
However, in case of non-repayment of the loan, you may have to give away your collateral to the lender.
Get ready to get your personal loans.
Many times your personal loans get rejected just because you don’t have a proper set of documents with you.
The documents often help your lender to make a decision about your financial position and your authenticity to get a loan. Hence, they are mandatory.
Here is the list of documents you may require submitting with your personal loan application
- your income tax return forms,
- your bank accounts,
- your list of assets and liabilities
- Any other document as mentioned in your loan applicaton.