To survive, people need money. Whether it is about educational finances, starting a business, having a fairy-tale wedding, or buying your house – all these dreams have challenges for you to fulfil.
Unfortunately, not all people can start a new life, and not all are privileged to have a ton of pennies in the bank. Personal loans are a simple solution for this problem.
A loan is not the only financial solution available, but it is often the most logical and less expensive, unlike using a credit card. After all, you can apply for a loan for numerous reasons: meet emergency expenses, support huge expenses, consolidate debt, and many more.
Listed below are the top factors you must consider in choosing personal loans.
Loan Amount and Tenure
The most critical thing you have to decide before applying for a loan is knowing how much you want to borrow. Calculating how much amount you need and comparing it to what you can pay back easily is the key.
Analysing the equated monthly instalment obligation using various tenure choices with the proposed loan amount is the best way to get to a budget-friendly proposition. Longer-term loans provide lower EMIs (equated monthly instalments) but higher interest obligations.
Rate of Interest and Other Charges
Always remember that the interest rate is based on several factors like your income, creditworthiness, employer, etc. After all, the rate is the most crucial factor that determines the total amount of your loan.
Therefore, you have to plan your loan cost for a lower interest rate can mean lower EMIs and, as a result, a shorter loan term. In addition, other fees or penalties imposed by the lending institution on a borrower may apply. This may include processing fees or penalties for late payment or default.
Credit Score
Your credit score is a major indicator of your eligibility. The number used to indicate your capability to manage a loan is between 300-850, representing a consumer’s creditworthiness. A higher score means a better borrower to lenders. This reflects the borrower’s overall financial health regarding disposable income, existing debts, borrowing, and payback behaviour.
You can calculate your credit score based on data from your credit histories, such as your open accounts, total debt, repayment history, among others.
Pre-/Part-payment facility and charges
There might be times when you need a loan right away but are confident you can repay quickly. To begin with, if you can make a full prepayment early in your loan term, you can save on interest. Most of the time, a personal loan usually has a lock-in term, after which the entire outstanding balance can be prepaid for a fee.
Income Vs. Monthly EMI
Naturally, you will also be required to repay the amount borrowed in the form of an EMI monthly. So before getting a loan, you should evaluate your cash flow, expenses, and financial responsibilities. Your monthly income should be sufficient to cover your EMI and your usual costs without putting a burden on your budget. In addition, your EMI obligations should not account for more than 40% of your overall discretionary income.
Remember that since personal loans are not secured by anything, lending organisations scrutinise borrowers’ profiles for factors including income, credit score, age, and employment history. So, look for the right application for finance for you.
