Purpose of the Loan
Spare some time and decide if you need the loan. You must ask yourself whether you can postpone the loan or use your personal savings instead of taking the loan. This will prevent you from opting for more than required. This is important because if you avail a bigger amount, it is you who have to pay higher EMIs later on.
You must meet the eligibility criteria of the bank while applying for a loan. This will include factors such as your age, a good credit score, a standard monthly income, affordability and any asset that the borrower may have based on the loan value. The factors are subject to banks’ terms and conditions. It is important to acquire prior knowledge about these as it will give you an idea about the highest amount you avail.
It is necessary to evaluate your feasibility of loan repayment. You should have good cash flow per month to pay your instalments smoothly even after paying all your bills and mostly expenses. You must opt for an EMI you can pay every month. A higher EMI amount means a shorter tenure and vice versa. Calculating the EMIs can be intimidating. You can try a Personal Loan EMI Calculator for this purpose.
Required Loan Amount
Decide the amount of the loan you need. The loan amount must be enough to serve your immediate purpose. But there are times when discrepancies arise between the amount you need and the amount you can get due to the eligibility criteria. Usually, the loan amount of a personal loan is between 50%-60% of the individual’s annual income.
Calculate the total sum you need to pay
You must know the entire amount of sum you are going to pay while clearing your instalments. Most people make the mistake of opting for a longer tenure and a lower EMI. In this way, you can end up paying more than you had borrowed. This is because the interest on the loan compounds annually. Thus it is always wise to keep the tenure shot and pay higher instalments.
Cost of Loan
Explore the costs of applying for a loan. Check the interest rates of Personal loan. It must be feasible for you. There are other costs that can be charged on your loan.
Always check and compare the processing fee of various banks. Some banks may impose a flat fee while others can charge anywhere between 0.25%-3.03% of the total loan amount.
There are banks that provide the option of prepayment of your loan. While some may allow a prepayment only after a lock-in period of 1-year, others may allow it only on the basis of the multiple of your EMI.
Late payment fees
Banks levy penalty against your failure to pay your dues on time. Usually, banks charge 2% every month in case of late payment. Note, these late payments will be reflected in your credit profile and affect your credit score.
Keep documents ready
You will require certain documents while applying for a personal loan. The required documentation will include your address proof, identity proof and income proof. These documents are essential as these will help the bank verify your identity and monthly income. Remember to checklist your documents.
Evaluate lender’s credibility
It is important to check the credibility of lenders. While banks are trustworthy and reliable institutions, there are various platforms on the internet that can give the users an overview of what they can receive.
EMI protection plans or insurances
Some banks offer protection for your personal loans. In case of death, accident or hospitalisation, these insurances will help you repay it. However, it is better to only opt for these in case your loan amount is high and the tenure is longer.
Availing a personal loan is completely your choice depending on the need of it. However, always make sure to go through all the terms and conditions before signing up for it. Missing out any tiny details can land you in trouble. Take out a few minutes and read the documents thoroughly to prevent yourself from any hassle in the future.