A personal loan is considered one of the best routes for any short-term financial mismatches or emergencies. The loan is extremely handy and can effectively manage both unplanned and planned expenses. Digitalization and the introduction of technology in the processing of personal loans have expedited the whole process, and as an outcome, you now can apply for a loan online and get its approval on the same application.
Does it sound exorbitantly good to be true? Note that it is the truth. Quick disbursement, swift approval, and no collateral requirement and few of the many factors that make a personal loan a popular loan option. Well, despite various benefits, there are specific factors about personal loans that still are untold. But do not worry; here are some of the personal loan tips revealed that you must know before availing of it.
Avail the personal loan just when it is necessary
It is a fact that the rate of interest charged for a personal loan, in comparison, is higher than other credit options. So, keeping it in view, you must always apply for the loan just when it is required. Also, it is crucial to understand that while personal loan assists you repay your short-term financial goals, you must repay it for the next upcoming years without fail. Hence, it becomes essential to ensure that you have the potential to repay the monthly EMIs from your income.
Before you make the decision to go with a specific lender for a personal loan, you must inquire regarding the additional charges besides the interest rate. Verification charges, processing charges, GST, penalty on late EMI repayments (defaults), foreclosure or prepayment penalty are a few of the additional charges you must know. Note that may it be private banks like ICICI bank personal loan or NBFCs like Tata Capital personal loan – all the lenders charge such additional fees. So, you must ensure to factor in such parameters also as such charges may club to form a bigger loan amount.
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Opt for a shorter repayment tenure
There are banks or loan providers that offer personal loans for longer repayment tenure with lower loan EMI. This is very tempting for most as they assume they are saving on the EMI component. However, note that in longer repayment tenure, you end up repaying more.
Holding a good credit score can assist you.
This is not very familiar to many, but holding a strong credit score can assist you in getting the best personal loan deal. Having a good credit score endows you with an edge to better negotiate with lenders for a suitable rate of interest.
Research well before applying
There are various personal loan lenders in the lending market. And each one of them provides the same product at a distinct rate of interest. To avail of a better offer on your personal loan, it is important for you to do in-depth research before choosing the lender of your choice. So, before you apply for a personal loan, make sure you have compared the various features like rate of interest, repayment tenure, processing charges etc., and then choose the provider that meets your requirements.
So, in case you are looking to opt for a personal loan, it is necessary for you to factor in such parameters as they will not just assist you in availing the best loan deal but also will keep you thoroughly safe from any future trouble.
Apply for a personal loan just when it is necessary
Lenders like Tata Capital personal loan or ICICI bank personal loan grant the loan of up to Rs 25 lakh. However, you must place an application for a loan according to your requirement. Note that it will make zero sense to avail of a high loan amount through a personal loan and then pay it with a rate of interest. So, remember, even if personal loan lenders are providing a generous personal loan deal, you should avail yourself of just the loan amount you require, and that is also the minimum loan amount possible.
Use the online personal loan EMI calculator for computing your loan EMI.
EMI is the loan amount you must repay per month towards your personal loan. So, this repayment amount must come comfortably into your budget. In case they are very high, you hold high chances of delaying or missing out on their repayment. Doing so will negatively impact your credit history. So, before you select your loan repayment tenure, use the personal loan calculator to get an estimate of your EMI and select the plan that you can afford easily.
Select a shorter repayment tenure
While you can avail of a personal loan for up to 6 years, you should try and repay the loan as early as possible. For this purpose, you again require using the online personal loan EMI calculator to select the shortest tenure with EMI you can afford each month conveniently. Longer loan tenure often keeps you stuck on longer tenure, and you can end up repaying a higher interest component towards the end of the tenure. However, if you select a shorter repayment tenure, you simply can get rid of the loan sooner and save considerable interest.
Do not apply for a personal loan if your score is below 750
Many lenders factor in your score when reviewing your personal loan application. They consider a score of 750 and above as good and may approve your loan. However, if the score is below 750, lenders consider you risky and may not approve your loan. If you get a loan approval despite a lower score, it is usually at a higher interest rate to compensate for the risk of the lenders.
Note that if the lender turns down your loan application due to a lower score, this may reflect on your report, which may pull your score further down. So, the major tip here is to have a good credit score before you place the application for a personal loan. To have a strong credit score, ensure you repay your loan EMIs or credit card dues on time, maintain a balance between the secured and unsecured loans, constantly monitor your guaranteed or co-borrower loan accounts, and maintain a CUR (credit utilization ratio) of under 30 percent, periodically review your credit report to figure out any error and timely report it to the concerned lender and bureau.