With the increasing cost of living, managing your expenses and making adequate savings is getting more difficult by the day. With a large number of options available, a personal loan might offer some respite in an adverse situation. However, finding the right loan offer for your needs can be tricky and time-consuming at the same time. So here we are to help you understand the types of personal loans available in the market and the importance of interest for personal loans.
So what exactly is a personal loan?
A personal loan is a simplified arrangement of funds between two parties, one is a lender and a borrower. As it is unsecured by norms, which means the borrower is under no obligation to pledge any asset against the amount taken as a loan. A borrower can use the amount availed for a variety of purposes whether for home renovation, debt consolidation, or to address an urgent medical situation.
The wide acceptance of these loans comes from their utility. A financially reasonable borrower uses the proceedings from the loan to bear expenses without exhausting their savings. The amount can later be paid in easy monthly payments as principal and interest repayment.
Factors involved in choosing the right personal loan
- Eligibility: The eligibility requirements are criteria involved in being eligible for a certain amount of loan, varies from one lender to lender. As an applicant, you shall choose the product that fits your current requirements
- Interest Rate: While deciding on a lender, you must research various rates being offered as interest for personal loan. RBI issues benchmark rates every quarter and the lenders charge a spread over them, which can easily be negotiated
- Processing Fees: Most of the time, borrowers overlook the charges related to the loan disbursal. Throughout repayment, these charges might cost a good amount in addition to the interest payments
- Repayment Terms: The repayment includes the loan tenure and the EMI amount to be borne every month. As a responsible borrower, make sure to settle with terms that can be accommodated within your current monthly income
- Loan Amount: You must restrict yourself from splurging and settle for a loan amount required at present. Personal loans are interest-heavy, and anything extra might lead to an added interest burden
- Approval Time: As most of the loans are for an urgent need, it is advised to choose a lender that is known for quick approvals with favourable terms & conditions
Precautions to be taken while choosing the right personal loan
- Extensive research: Comparing different offers and asking for quotations is quite under-rated. If you are willing to get the best offer, make sure you have multiple options available
- Loan Agreement: As lenders are under a strict mandate to provide terms & conditions, make sure to read the fine print carefully before execution. The agreement includes details of penal charges and others
- Prioritise your Budget: If you like to splurge even while servicing a loan agreement, you must prioritise repayments over expenses. Missed payments and penalties lead to a negative effect on your credit score
- Credit Score: A credit score provided by CIBIL or any other bureau, serves as a negotiator on your behalf. If you have a good credit score, make sure to negotiate with the lender and use it to your advantage
- Loan Amount: Lenders are bound to offer more than you need, but it is advised that you take only as much as is needed. A higher loan amount means increased interest payments, that might be an added expenditure
So, the next time you are deciding on a personal loan, make sure to negotiate for the interest on personal loan as well. If it is your first time, make sure to talk to an advisor at any reputed platform like Hero FinCorp to get the right advice.