A personal loan allows fast and easy access to money when needed. But before getting a loan, you should carefully examine some key points. Rushing into a loan requires thinking it through to avoid money issues later.
This article covers five key points to consider when applying for an instant personal loan. Carefully examining these will help you make an intelligent borrowing decision based on your situation and budget.
5 Factors to Consider While Taking a Personal Loan
Here are some things to consider while taking a personal loan:
1. Evaluate if you Need a Loan
Before getting a personal loan, see if you require the money or can manage without going into debt. Consider whether you have other options to arrange the cash, like savings accounts, selling assets, borrowing from family and friends, or credit cards.
If these options do not work, carefully check if you require additional funds before getting loans. Thoroughly evaluate the amount you need and what you need it for.
2. Compare Interest Rates Across Loan Providers
All loan providers charge different interest rates on personal loans. Generally, interest rates can start at 11% annually. Banks usually have the lowest interest rates. Newer financial technology loan providers and non-banking finance companies (NBFCs) typically have higher rates. Even a 2-3% rate difference can significantly affect your EMIs.
So, put in the time to thoroughly compare interest rates from different loan providers before choosing one:
- Check rates online on bank sites and loan comparison platforms
- Shortlist loan providers offering the lowest interest rates on personal loans
- Find out eligibility criteria, margins, and charges for each loan provider
- Avoid taking loans with very high processing fees or foreclosure charges
3. Check What you can Repay
The main thing in smart borrowing is working out what EMIs you can afford before getting a loan. Sit down and thoroughly see if your income has room for more EMIs:
- List down all your monthly income sources after taxes/ deductions
- Account for all financial obligations like loans, credit cards, expenses, etc.
- Use online EMI calculators to determine prospective EMIs for the loan amount you need
- Check if total outflows exceed 60-65% of your net monthly income
The goal is to ensure you don’t over-leverage yourself with a debt repayment burden beyond your means. Managing other expenses can be difficult if more than 65% of income goes towards EMIs and charges. This may cause missed or late payments, hurting your credit score.
4. Check Your Credit Score
A good credit score increases loan approval odds and gets you better interest rates. A credit score of 750 is typically viewed as good. However, whether the loan terms get the best can vary by loan provider, as banks may have slightly different cutoffs for what they consider excellent credit or thresholds for approval.
You need to work consciously towards boosting your score by:
- Making on-time repayments on existing loans and credit cards
- Keeping credit card balances low
- Having a diverse credit mix, including secured and unsecured loans
- Having long-term credit accounts instead of multiple new applications
- Registering for Aadhaar, PAN card, voter ID and other KYC proofs
5. Compare Deals From Different Loan Providers
Looking at various loan providers is critical to finding the best personal loan for your financial situation. Talking only to your current bank or the first loan provider you find may not get you the best deal.
So, thoroughly check the market by comparing personalised personalised loan offers from different institutions:
- Banks usually offer lower rates to existing account holders but may have rigid eligibility norms
- NBFCs often provide sizeable loan amounts without collateral to salaried individuals
- Fintech firms and online loan providers provide swift processing but charge higher rates
- Some loan providers may provide flexible tenure options ranging from 1 to 5 years
- Several loan providers also customise offers based on income, employer, credit score and location.
Use online financial marketplaces that give you free access to multiple loan providers on a single platform. Evaluating varied players in detail equips you to make judicious comparisons and informed borrowing decisions.
Conclusion
Assessing the above five parameters will enable you to make informed decisions when taking a personal loan. Avoid impulsive borrowing. With adequate research and financial wisdom, personal loans can be cost-effective solutions for funding goals, emergencies or large purchases.
If you need money immediately, an instant personal loan can provide fast access to cash. Since these loans get approved and paid out quickly, they may be helpful when you’re in a financial pinch. Make sure you can manage the repayment terms and interest rate based on your budget.
