You are often tempted to apply for a Personal Loan during times of financial crisis. It can help you meet educational expenses, medical emergencies, home renovation costs, or other financial requirements. However, there are several aspects of a loan that you must know about before taking it.
This blog explores the top factors to consider before taking a Personal Loan.
Factors to consider before applying for a Personal Loan
1. Good credit score
A credit score highlights your creditworthiness after evaluating your credit repayment history. It is calculated and generated by Credit Bureaus or Credit Information Companies (CICs). This three-digit number ranges from 300 to 900 and a score above 685 is considered favourable. A lower credit score can work against your application, resulting in loan rejection.
Maintaining a good credit score is easier when you pay your dues on time. Moreover, setting up automatic payments can help ensure timely payments and using the Credit Card wisely can also help in improving your credit score.
2. Competitive interest rates
Compare the Personal Loan interest rates of different banks and lenders. This comparison helps you pick a Personal Loan with the lowest interest rate. It also makes repayment of equated monthly instalments (EMIs) easier.
3. Evaluate all costs
When you apply for a Personal Loan, there are various costs involved, including processing, prepayment, and late payment fees (if applicable). Evaluate all costs your lender can charge to estimate the loan’s expenditure clearly. If you factor in all the costs associated with the loan, you can manage your finances better and determine the affordability of the loan.
4. Repayment terms
Repayment terms refer to the time you have to repay the debt. Banks offer different repayment terms, such as one year, three years, five years, and so on. Based on the repayment plan you choose, the Personal Loan interest rate is also impacted.
Make sure you choose a repayment tenure that suits your circumstances. This choice will depend on your ability to repay the loan. Consider your monthly income, investment returns, and other sources of earnings alongside your expenses. Estimate how much you can divert toward EMI each month. Understanding your loan repayment ability can help you decide on a suitable repayment plan.
5. Documentation
Inquire about the financial institution or bank’s loan application process. Many banks demand minimal documentation and have a hassle-free process. Keeping your documents ready can accelerate the application and approval process.
6. Approval and disbursal
You must always apply for a Personal Loan with quick approval so you can get the required funds at the earliest. Fill out your loan application with the utmost care to ensure that the information is accurate. Also, submit relevant documentation for quick approval and disbursement.
Most banks mention the time taken to disburse a loan. Try approaching one with an instant disbursal facility.
Conclusion
There are many types of Personal Loans that a self-employed and salaried individual can apply for. But, before you apply for a Personal Loan, you must understand the amount needed and your loan eligibility.
You must consider various essential factors such as credit score, Personal Loan interest rates, loan fees, repayment terms, required documentation, and approval and disbursal timeline. A look at these factors helps you make an informed decision and be able to manage your finances better.
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