InvestorQ : Are there any points I must consider before I apply for a personal loan?
Kalyani Sundaram made post

Are there any points I must consider before I apply for a personal loan?

Answer
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2 years ago


Choosing the right loan for your financial need is an important and often, daunting task. This is because a loan has various implications, not only on your current finances, but on your financial situation in the future, too.

Let’s try to make the entire personal-loan taking process a tad simpler for you. Here are a few points that should help:

Plan your budget and stick to it: Don’t get too excited and ask for a higher amount than what you require. Borrow only as much you need and use it towards your expenditure.

Check your credit report: A credit report has become one of the most important prerequisites for lending to customers. Banks or non-banking financial companies (NBFCs) determine whether to lend to you or not, based on your credit score. Thus, if you have a good credit score, you are more likely to get a loan vis-à-vis a person with a bad credit score.

However, you need not worry if your credit score is bad. It is advisable that you don’t apply for a loan with a bad credit score, and take some time to work on your credit score before you apply again.

Know your annual percentage rate (APR): In simple terms, APR is how much your loan will cost you in interest per year. The interest rate for personal loans ranges from 10.75% to 35% depending upon the individual applicant profile and the lender.

Do your homework: While it may seem obvious, many customers do not conduct a complete and detailed study on various personal loan options such as interest rates, pre-payment charges levied, if any, and various other terms and conditions. You MUST go through and analyse all your options, before you make a decision. No aspect of a loan should be taken lightly for it will define how luxuriously or miserly you will live for the next few years.

Eye zero processing fees and zero-penalty for pre-payment option: Pre-payment of a loan is when while paying your EMIs, you also make part payments to reduce your loan tenure, and hence the interest charged. However, some lenders levy pre-payment penalty, so, ensure the loan you are opting for does not attract this.

If you are not getting any lender with zero pre-payment penalty, then opt for a loan with the lowest cost. It might not seem like a lot right now, but additional costs snowball into a huge painful amount by the end of your loan tenure.

Evaluate your default risk: Evaluate the outcomes of the various banks and NBFCs if you are unable to repay the loan amount and choose the one with the most lenient outcome.

Haggle well: We, Indians, are good at haggling, but we often get intimidated by the big financial words thrown at us and take the lender/relationship manager’s word to be the final word. Don’t do that. You can ask for customised personal loans quotes from at least 3-5 lenders and try and negotiate a good deal from a lender who appeals the most to you.

Lower rates are not paramount: Though interest rates are a deal maker or breaker, but don’t just fall for lower rates. Instead, check whether the lenders are offering it on flat interest rate basis or reducing balance basis.

Finally, ensure you read your loan document end to end and reach out to the lender if you have any queries. It is better to get your doubts cleared before you sign the dotted line.