Technology has changed several things and banking and Finance sector is also not left behind from this change. Nowadays getting a SMS, mail and phone call which offer a personal loan is not at all big deal. Some will say they offer personal loan at low interest rate while the others will say they offer quick disbursal. Many of fall in this trap and go for the loan. But before opting for a personal there are many things that everyone should know and be clear about. Some of these are- is a personal loan really required, if yes then how much and which lender would be ideal to approach?
Here are 10 Golden Rules to follow when taking a Personal Loan
Don’t borrow more than Required
Though technology has changed lending and borrowing system which made it easier for the borrower to borrow. But this doesn’t makes any sense to borrow without any strong need or to borrow more than the need. It is a happy thing to get a desirable loan but repaying the loan is never a happy thing. EMIs directly depends on the amount borrowed. ‘Always take a loan which you can easily repay’. According to one of the thumb rule of investment the personal loan EMI should cost 10% of the monthly salary as apart from paying EMIs there should be enough money left for all other monthly needs.
Make sure the Repayments are Timely
Late repayments are indiscipline action which may end up with paying penalties and spoiling CIBIL score. CIBIL is the basic representation of one’s credit and financial history, and late EMIs directly affect the CIBIL Score. This affects the borrowing credibility and makes future borrowing difficult. So it is always better to be on time with the EMIs.
Try to keep the Tenure as Short as Possible
Opting for a longer tenure is always tempting as it lowers the EMIs. But in this case the borrower unknowingly ends up paying a lot more to the lender, than the borrowed amount. When the tenure is short, the EMIs would be a bit more but in this the loan can be repaid in a shorter time, hence paying less amount as the interest to the lender.
Always take Insurance for a Large Loan Amounts
To have a Loan Protection Insurance is very important, when the loan amount is huge. A loan insurance safeguards the borrowers family’s future by repaying the loan when the borrower fails to repay. Many loan insurance covers job loss, major accidents, permanent and temporary disabilities and death too. So in these cases the insurance company will pay the remaining EMIs.
Always Look for the Best Option
There are a wide variety of options available for personal loan. But the rates and charges offered varies from lender to lender. So, when anyone decides to opt for a personal loan try to look around and compare, which can be done easily on the internet nowadays. Compare different banks for the interest rates and different charges. Then select the best lender which suits the eligibility and the desired loan amount and tenure.
Understand the Fine Prints
While applying for any kind of loan the borrower has to sign a loan agreement. Many people sign it in so much hurry that they don’t read at all what the agreement says. The fact every borrower should know is that agreement is very important and contains terms and policies of the loan. Not reading and understanding these agreements may bring a lot of difficulty and surprises in the future when some unexpected charges show up.
Don’t take a Personal Loan for Investment
Personal loans are unsecured loan which comes with high interest rate. If personal loans are used for investment purpose such as in stocks, shares or even for any business there is no surety that it will bring profit. This will make difficult for the borrower even to pay the EMIs. So, if possible try to avoid investment with a personal loan. Moreover, the basic idea of investment is to make money on the invested amount, hence an amount secured through a loan will also include the interests on it. Then the investment channel should give returns which are much more than the interest on the personal loan for someone to actually be making money.
Prepay when and if Possible
Always try to save money wherever it can be done. Saved money can help to prepay the loan. There are many things such as bonus, incentives, hike which provides extra money which can be saved and used to prepay the personal loan. Prepaying a personal loan will help to save a significant amount on the interest which would have been paid throughout the tenure to the lender. Moreover the life will be debt free and the money which was going into loan repayment can be used for other purposes.
Don’t avail other Personal Loan before Closing the First One
Going for personal loan one after another even without ending the previous one shows that the borrower is credit hungry and doesn’t have a financial stability. Hence the lender might even reject the application which in turn will bring down the CIBIL Score which can make future borrowing difficult. However, if the previous personal loan is at a higher interest rate, then it makes a complete sense to go for a new one to close off the previous higher interest loan(s). If there are multiple running loans, then a debt consolidation will not only help reduce the EMI burden but will also improve the CIBIL Score over time.
Calculate EMI before going for a Personal Loan
Nowadays online EMI calculators are available on many websites where it is easy to calculate EMIs with a few clicks. Calculating EMI in advance can give a picture about the future when the loan repayment will start and how would it affect the monthly budget. Using the Personal Loan EMI Calculator different versions of loan amount and tenure can be worked out.