Top 5 Factors to Consider Before Taking a Personal Loan
Personal Loans are one of the quickest ways to get your hands on some cash. You can avail these loans without keeping any valuable assets as collateral. These days both banks and financial institutions offer unsecured loans with multiple choices. Additionally, these loans are simple to apply for and avail too.
Because of it, Personal Loans are one of the most sort-after loans to fund a cash crunch. Moreover, a Personal Loan can be taken for any particular need. It can be used as a home renovation loan, higher education loan, a loan for a wedding or a loan to buy goods. A Personal Loan can become the perfect financial solution for your needs.
Despite the benefits associated with it, taking a Personal Loan is a big decision. You need to consider several factors before applying, such as:
Credit Score
Having a good credit score is a fundamental Personal Loan eligibility criterion. You need to have a credit score of 700 or above, to not only get the loan sanctioned but also to avail a low-interest rate. If you’re considering taking an unsecured Loan, it is a good idea to improve your credit score. You can do so by clearing your pending dues and bills. Inversely, taking a Personal Loan also has a positive impact on your credit score. You can use for debt consolidation by paying up your multiple credit lines through one single Personal Loan. Thus, increasing your credit score.
Monthly Income
Before you apply for a loan, you need to evaluate your ability to repay the loan. For this, consider your monthly salary. Ensure that your income is enough to accommodate the EMI amount, even after paying the rest of your monthly bills.
Loan Amount
The ease of getting a Personal Loan might tempt you to apply for a higher amount. However, it is not a good idea to go overboard with the loan amount. A higher loan amount means you may have to pay higher interest. It also affects your overall debt, which could affect your credit score. Make sure you calculate your expenses and only then apply for the necessary amount.
Interest Rate
Different lenders offer different interest rates for a Personal Loan. Compare between interest rates offered by banks and Non-Banking Financial Companies (NBFCs) and pick one that offers the lowest Interest Rates on Personal Loans. The process of applying for a Personal Loan from banks can be time-consuming; moreover, the interest rates may not be as attractive as the ones offered by NBFCs.
Charges
Apart from the loan amount and the interest, consider the various costs added to the total sum of the loan. These include charges like processing fee, prepayment fee, late payment fee etc. Get a precise estimate of all lender charges before applying for the loan. This could help you manage your finances better and decide if you can afford this loan.
A Personal Loan could be a reasonable way to deal with a financial emergency, but you need to consider the factors mentioned above before signing for it. This could help you better evaluate your future repayment situation.
