A personal loan can be a great option if you’re in dire need of some quick money. It is usually an unsecured loan that is sanctioned based on your credit score only; and it does not require collateral. A personal loan can be quite handy if you want to release yourself from a financial crunch. You can apply for a personal loan for expenditures like home renovation, weddings, or even use it to start a new business. But make sure you keep the following things in mind while applying for a personal loan.
Do you really need it?
One of the first things to decide is whether you actually need a personal loan. Any loan can be a burden on your monthly income if applied for without serious consideration. Don’t apply for a personal only because it is usually granted quickly by banks if you have a good credit score. Weigh in the reasons that warrant a personal loan and make sure you don’t apply for a personal loan for frivolous and unnecessary reasons.
Check your Credit Score
Before you apply for a personal loan, make sure you check your credit score to see whether your personal loan is likely to be approved or not. Take care of any dues like other loans or credit cards because these reflect on your credit score. You can find your credit score on many online portals and banks for a fee.
Look for the best interest rates
Banks usually charge a very high interest rate for personal loans since the loan is unsecured by any collateral. A personal loan interest can be anything between 12% to 14%. So make sure you look around for the best interest rates and apply accordingly. You can either choose a fixed interest rate or a variable one.
Keep an eye on the penalty charges
If you don’t pay your monthly installments on time, you will be charged a penalty for the same. In case of personal loans, this penalty charge can be quite exorbitant. Hence, it is best to find out all details about late fees and penalties before you apply and choose a lender accordingly.
Finally, only borrow as much as you can repay
This is the thumb rule not just for a personal loan, but any loan. You should always keep your monthly salary in mind while deciding on a loan amount. Experts say that a personal loan EMI should account for no more than 10% of your monthly salary. Anything higher might become a burden. Your loan to income ratio will give you an idea of the percentage your EMI will eat out of your salary.
A personal loan is easily granted as long as you have a good credit score and the lender is sure that you can repay it. It is because of its convenience and speedy sanction that many consumers opt for a personal loan to pay unexpected hospital bills and unforeseen expenses. So the next time you wish to apply for a personal loan, keep the above things in mind.