Most probably, one of the scariest things regarding financial exigencies is they knock at your door unannounced. While having a backup in the form of an emergency fund earmarked for such events is the wisest thing to have, there is time-based on the nature of the emergency, and you may still not have sufficient backup in place. Thanks to personal loans and credit cards, you still can mitigate this requirement.
As they are unsecured credit options, one of the major benefits of having a personal loan is they can be utilized for mitigating any of your financial needs, may it be renovating your house, funding higher studies or medical exigencies. To top this off, you do not require pledging any security or collateral to avail of this loan. Let us take an in-depth look at a few of the dos and don’ts that you require to follow when availing of a personal loan.
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Have an idea why you are availing the personal loan
Unlike car loans or home loans that are particularly designed to mitigate your needs, personal loans can be utilized for meeting any financial requirement. There are majorly 2 reasons to avail of a personal loan – use it to either exit debt or to finance a requirement like home renovation expense or higher education costs. While using a personal loan to exit debt might appear counterintuitive, it is not actually this. As compared to credit cards that come with an average rate of interest of 25 percent p.a., the lowest personal loan interest rate may be 10 percent p.a. This makes them a manageable alternative to card debts.
Note that if you compared an unsecured loan with a secured loan from an interest rate point of view, you would find that unsecured loan fares better than secured options. The lowest home loan interest rate can be 6.55 percent p.a., for a car loan, the interest rate can start from 7 percent p.a. However, unsecured loans usually start from 10 percent and above. An interest rate of an unsecured loan is on the higher end because the lenders have no security to fall upon if you default on the loan EMIs. Thus, to meet their high credit risk in this aspect, lenders often charge a higher interest rate on unsecured loan options.
Shop around for the lowest rate of interest
The thumb rule that you must follow when availing of a personal loan is to understand why you require the loan. In this way, you can easily draw up your repayment schedule, which you can stick to for paying off your debts. However, before you make up your mind to settle with one, ensure to shop around to compare the various rate of interest. Any small difference in the rate of interest can save you thousands and thousands of rupees over the repayment tenure of your personal loan.
Ensure to read the fine print
There is nothing probably as crucial as carefully going through the fine prints before you make up your mind regarding a personal loan. Read up the important details like the required repayment schedule, the maximum repayment tenure, any income cut off parameter and how long it may take to avail of the loan approval.
Also, ensure to watch out for the processing charges. Few loans provide incredibly low rates of interest as a part of promotions but compensate for it by charging higher processing fees.
Do avail the benefit of promotions.
Applying through the aggregator for a personal loan can endow you with access to appealing interest rates that are not generally available on the website of bank. Additionally, on the aggregators’ site, you may be able to compare various interest rates across different lenders and settle for the one offering you the best deal. Opting for this route to check your eligibility allows you to rule out the chances of personal loan application rejection. This is because the aggregators provide you with the loan offers after in-depth scrutinization of your inputted details. They only provide you with those lenders who are willing to offer you a personal loan. Opting for the lenders recommended by the aggregator helps in lowering the risk of application rejection.
Also, to sweeten up the loan deal, aggregators may even throw up goodies such as welcome gifts in the form of cash vouchers or cash discounts. Thus, ensure to take advantage of it to avail the most out of your personal loan deal.
Do not skip your loan repayments.
While applying for a personal loan through aggregators may not negatively affect your credit score, defaulting can. Continuously defaulting on your loan repayments may bring down your credit score adversely. With a bad credit score, it may become extremely tough for you to avail other crucial loans in future. Thus, before you sign on to the dotted lines for a loan, ensure to use an online personal loan EMI calculator to get a fair idea about your expected monthly EMIs. Through the calculator, ensure to check if you can afford to make monthly repayments via your earned income. If not, then consider either lowering your loan amount requirement or extending your loan repayment tenure. Routing for any of the 2 options will help in lowering your monthly EMI requirement.
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Do not use a personal loan for your non-essential spending
While a personal loan owing to its unsecured characteristics and low rate of interest (only if you have a high credit score), is a manageable and useful financial instrument, do not just avail it because you can. Do not get it on a whim or to finance your excesses.
Get a sense of your spending pattern and financial habits before you sign up for the personal loan deal. At the same time, it can assist you in mitigating your requirements during financial exigencies. It requires monetary commitment and discipline towards regular repayments.
If you are completely up for this, then you can explore various personal loan deals by visiting the online lending marketplaces to get the best offer.
