With the ease of processing, quick disbursement, and zero need for collateral, personal loans are coming up as great money channels to fund the next exotic holiday or carrying out home renovations. However, there are certain aspects that you need to check before opting for personal loans such that they become a smart choice for financing.
Interested to see what these top factors are? Then read on:
- Tenure of loan
The duration of servicing the loan is known as loan tenure. The tenure is inversely proportional to the EMIs you will be paying. The typical duration of a loan varies from 1 year to 5 years. Nowadays, some banks have started offering upto 7 years tenure as well. The intention should be to complete the tenure as soon as possible, because longer tenure generally means higher payments towards interest component of the loan.
- Bank charges
All fines, penalties, late payment charges, and fees are costs of servicing the personal loans. An applicant needs to be aware of these charges. You need to make sure that they are kept to the minimum to avoid financial catastrophe and high costs of paying off the personal loans. You also need to be aware of mandatory charges like foreclosure charges, collection charges, and documentation charges.
- Interest Rates
Different banks offer variable interest rates. Of course, lower rates mean that your total repayments will be lesser. Currently, the personal loan interest rates are ranging from 10.99% to 21%. It may happen that the same bank may offer different interest rates to two different profiles. Hence it will be wise to check interest rates applicable to you based on factors like income level, age, type of employment (whether salaried or self-employed), and that too from more than one lender.
- Deferment process
Future scenarios might not be as favourable as it is today. It may happen that due to situations like job loss or medical emergency, you may be unable to pay off the balance of your personal loans. Do check with the bank and know what would happen in such a case.
- Pay attention to the needs
It might happen that you need an amount of Rs. 2 lakhs, but your eligibility report says that you are eligible to borrow Rs.5 lakhs. What would you do? Go for Rs. 2 lakhs or Rs. 5 lakhs?
A sensible decision would be to go for Rs. 2 lakhs (your required amount).
Rather than checking your eligibility, you need to be checking your needs and then apply for the apt amount of personal loan. This is especially true for those who earn a higher income and hence have better eligibility than the required amount). These unsecured loans come at higher interest rates, and it makes financial sense to opt only for that amount which is sufficient to meet your needs. This way, you will not be drained financially while doing the repayments.
To wrap up
With no restriction of how money is utilized, along with the decreasing loan rates, personal loans have become a great way to arrange quick funds. Make sure you keep the above five factors in mind before opting for any.