Along with being an unsecured loan, personal loans have an extremely high rate of great interest attached to it. So one you should be considering having a loan for personal needs provided that:
There is no reason an asset/security against which you’ll be able to get a loan. For e.g. if you have an FD you’ll be able to pledge, a secure loan will make more sense.
You have some visibility on your cash flows and are sure that you’ll be able to repay the EMIs (Equated Monthly Installments) in time. Else you’re certain to enter into a debt trap.
There’s an emergency and you need funds immediately. A loan for personal needs can be studied since the processing time is much lesser seeing as minimal documentation.
Opt for personal loans only to meet your essential needs which cannot wait. It should be your last resort. Puting for satisfying leisure needs might be costly i.e. for gambling, purchasing a new car (a car loan is a better bet with a lower interest) etc.
Before You Decide to Choose Your Loan For Personal Needs:
Calculate the most cost effective loan offer: These loans come with extremely high interest rates starting from 14% to 25%. Compare rates of interest and get the complete picture by understanding the annualized interest rates for each offer. Then figure out the entire great deal of repayment you should pay out with all the offers before choosing the loan of your respective choice.
Processing fee et al: You would like to keep in mind the processing fee along with other fees which will be levied when you submit an application for your unique loan.
Prepayment penalty check: Ask upfront if there’d be any penalty payments for prepayment whatever the personal loan at any point in time. More often than not loan consumers tend to pay out their loans sooner than planned it doesn’t need to be rid of debt. Hence, it is vital to know if your loan for personal needs offer allows part prepayments. In that case, then you should know from what time-frame in mortgage period you can start prepaying and understand the rate you incur due to such prepayments partially or full.
EMI and tenure: Evaluate all loan offers. The primary condition for loan offer selection is the total money outflow that the loan will cost. The next factor is the EMI. A loan offer with a reduced EMI and an extended tenure may seem attractive, as it could be easy in your purse strings, however not all such loans might be cost effective within the long run. Hence, first calculate the entire loan cost after which try to go for a higher EMI, which you’ll be able to comfortably get to enable a shorter loan tenure.
Monitoring your credit rating: Especially in the case of unsecured loans, your credit history, and that is recorded by CIBIL (Credit Bureau India Limited) plays a critical role within your loan application being accepted. A good repayment track record ensures an instant loan approval but brownie points in the form of more desirable interest rates.
Who’s Eligible For a Personal Loan?
The eligibility criteria and their particulars may differ from banks to bank based upon their perception whatever the risks related to such loans. However, nearly all banks divide the potential borrowers into three categories:
- Salaried individuals
- Freelance individuals
- Freelance professionals
Additional factors which are considered are, age, residence, professional experience, repayment capacity, past obligations and add of work.
What Documents Are Required For a Personal Loan?
Personal loans require the least number of documents, making it the fastest it doesn’t need to be approved. Typically, financial institutions would require evidence of identity, residence, income and in addition 3 to 6 months of your respective bank statements. Some banks also require guarantors and the same set of their total documents.
Alternatives to a Personal Loan
As indicated at first of the art should you have access to investments you could pledge, like shares, fixed deposits, gold, and insurance policies etc. you can obtain a loan against them. The interest rates are lower compared to personal loan interest rates.