Availing a personal loan has become easier than ever before. Today you can avail quick finance anytime with the help of a loan app. Simply download the app on your mobile, add a few details and get the loan amount in your account within 24 to 48 working hours.
No doubt, online loans have completely changed the financial landscape of India. Today, there are many lenders in the market offering personal loans at competitive interest rates. This has resulted in a steady increase in the number of people availing personal loans to fulfil their financial obligations. However, availing a loan without knowing the basics can land you in a debt trap.
Thus, you must know about the most important considerations before availing a personal loan. This will help you access your financial situation, know about your loan eligibility, and find the best personal loan offer that fits your need.
Read on to discover the 5 rules you must follow to get the best personal loan.
5 Rules to Follow When Availing of A Loan
- Get A Loan Based on Your Payback Capacity
A simple strategy to avoid the EMI spiral is to apply for a loan you can pay off quickly and affordably. To do this, make a conscious effort to keep your total monthly obligations below 40 per cent of your income. This includes your loan EMIs, credit card bills and other fixed utility bills. You can adjust the EMI by altering your loan amount and loan tenure.
It is also important to have a proper repayment plan in place. You must keep at least 3 to 4 months of EMI amount in your account to take care of unforeseen events like job loss or personal loss.
- Select a Short Repayment Term
Personal loans come with flexible repayment tenures. You can choose a repayment tenure between 12 months to 60 months. Though a longer tenure can bring your monthly EMI down, it will eventually increase the total interest payout on the loan. Thus, it is ideal to go for a shorter loan tenure. The best choice is to opt for a loan tenure of 12 to 24 months.
However, if you are doubtful about the affordability of your EMI, then select a loan tenure that brings your EMI within the affordable range. Opting for a higher EMI increases your chances of EMI default. In addition to this, you can always opt for pre-closure or part pre-payment.
- Compare different lenders before availing the loan
Many borrowers make the mistake of not doing thorough research before availing the loan. You must compare different lenders available in the market to find the best loan offer. The best loan offer should come at low-interest rates, minimal charges, high flexibility and the best customer service.
Compare the interest rates and the different fees associated with the loan. You must also take time to check the reviews posted by existing customers. This will help you identify any hidden charges or any other loopholes. Always go for a reputed lender, with good customer ratings. Also, note the eligibility criteria and documentation process for the loan should be simple. You can download a loan app or visit loan comparison websites.
- Read the Loan Agreement’s Fine Print
All relevant loan information, such as features, terms, conditions, interest rates, processing fees, pre-payment penalties, and foreclosure penalties, is included in the loan agreement. You could incur a high cost if you sign a loan agreement without reading it first since there may be unstated terms and fees that are not in your favor.
Please read the terms and conditions in advance so that can may make an informed choice. Before making a loan decision, clarify any terms or phrases in the loan agreement that you do not understand. It is very important to have a thorough understanding of this document.
- Consider Purchasing Insurance to Cover Your Loan
Unpredictability is a challenge in life, and unexpected events might happen when we least expect them to. A sudden job loss, accident or any other personal loss can bring a disruption in your income, making loan repayment difficult. But missing out on your loan EMIs can result in a negative credit score and high penalties. In such cases, loan insurance can come to your aid.
Loan insurance also takes care of your loan liability in case of the death of the borrower. The burden is not passed on to the family and is taken care of by the insurer. This makes loan insurance a very crucial instrument.
A personal loan is one of the most useful financial tools that you can use to meet your financial obligations. Be it paying for medical treatment or home renovation, wedding expenses or travel expenses, you can simply download a loan app and apply for an online loan.
But before applying for the loan, you must remember that a personal loan is a debt tool and you must repay the loan amount along with the interest incurred. Hence, it is crucial to make prudent borrowing decisions.
Apart from the above-mentioned tips, here are a few more things that you must keep in mind – Always borrow the amount you need to fulfil your urgent requirements. Check your credit score before applying for a loan. Negotiate with your lender for better loan terms. Never borrow for investment purposes. Always make timely payments on your loan.