There are times when you need a small amount to tide you over a bad time or to pay off a medical bill or repairs to your house. It may be a good idea to avail of a personal loan to get you over the wrong time. It is not a good idea to take a loan more significant than you can comfortably repay.
Still, a small amount which you can pay conveniently over two to five-year tenure may be a good idea to relieve you of an immediate burden. Hence, applying for a personal loan online is more comfortable to secure, and you may want to take that holiday abroad with the credit!
What Criteria Should You Look For To Get The Best Personal Loan?
You have made up your mind that you need a personal loan and have decided how much money you need immediately. There are a few considerations before you close the deal.
- The lending institution that you visit regularly may be one of your first choices as the personal history will get you the loan quickly. But it is essential to look for a personal loan that gives you maximum benefits like lower interest rates, longer tenure, or minimal processing fees. Compare all the features and benefits of the bank or NBFC before shortlisting the ones you can approach for a loan.
- You should calculate the loan interest rates very carefully. The lending institution will generally give you a flat rate. This is not a real indicator of the rate of interest, as, in actual terms, the interest is calculated on a reducing balance. So if you have been told it is a flat rate of 14%, the reducing interest rate will work out to 22%. Many lenders advertise low rates, but the additional charges often add up to a significant amount.
- The processing fee is often overlooked when you get the personal loan sanctioned. Some lenders may charge you as high as two per cent. So, if the loan is for ten lakhs, you pay Rs 20,000 plus GST as processing charges. This is what lending institutions that advertise a 0% EMI do. They charge you a whopping processing fee that negates the zero interest facility.
- The lending institution will ask you to invest in insurance too. It is vital that you should have knowledge of the amount before you sign the deal. The insurance is an excellent way to absolve any responsibility of the loan passing to your dependents if something untoward happens to you.
- There is something called foreclosure charges that financial institutions like to hide in the fine print. The clause states that you could be charged as high as 5% plus GST if you close the loan before the tenure is over. Look for loans with low foreclosure charges or zero foreclosure charges. This is generally negotiable, and you can get it down substantially if you spot the clause before you sign on the agreement.
- It might sound counterproductive, but do not look for too many lenders. Excessive credit inquiries may damage your credit score and make your loan more expensive. Look for the best deal online by filling your details on an aggregator site and checking your eligibility. You can also use the online calculator available on these sites to calculate the EMI payable. Never borrow beyond the means to repay and one way to know the repayment amount is by using the personal loan EMI calculator.
There is some more common sense stuff that you need to know before you start shopping for a loan. Always maintain a good credit history. Your credit score can determine the rate of interest and negotiations. You should only borrow the amount you need. There is no sense in paying interest on money that you are not using at all. Always keep a provision of at least two EMI’s in your financial institution so that your repayment pattern is impeccable.
Look out for balance transfers when the interest rates drop. Many lending institutions give you desirable rates to gain a customer. Check out the difference it makes to your EMI and the amount you pay to foreclose the loan and other expenses before you make a decision. The other reason to opt for a balance transfer – it lengthens the tenure of your loan and reduces the EMI in the process. You can use the online personal loan calculator for calculating the EMI amount you have to pay per month or year.
Taking care of the above tips can help you make an informed decision. As mentioned above, you can use the sanctioned amount to meet a financial need in your life. The loan amount can be used to fulfil small and big needs, vacation dreams, setting up or growing a business, taking care of wedding expenses, and such. Never take a loan just because you have been offered one!