Personal Loans have always been the most popular financial product. Personal Loan is considered the best option to eliminate cash crunches and has shorten the gap between your needs and fund. The reason behind its high level popularity lies in its unsecured nature and flexibility to use it. One can get a personal loan for home renovation, higher education, for wedding expenses and even in case of medical emergencies to pay medical bills. One can avail this loan for any of these purposes and no security or collateral is required to give against the loan.
High demanding lifestyle of people is also a major reason behind its increasing demand. Banks in India offer personal loan at attractive tenure along with attractive interest rates, and even different offers can be availed usually given during the festive periods. However before you get magnetized by these attractive offers and make your mind to avail one, it’s very important for you to be aware of a few intricacies associated with this unsecured Personal Loan debt.
5 Things to Know Before You Go For a Personal Loan
Shop around for Best Option
Personal Loan is the product common to almost every bank but the interest rate and other charges related to the loan vary from bank to bank. Even if you shop around for a particular loan amount, the processing charges, interest rates and even the tenure period can vary. So it’s always a good decision to first shop around and then choose the best suitable bank for you in terms with all the above mentioned things. This will help you save a lot on the interest.
Keep the EMIs Affordable
Personal loan generally have high interest rate and shorter tenure period as compared with other loans. But, that doesn’t mean that you should agree to an EMI which you can’t afford and which can affect your monthly budget. In situation like this you may be able to pay the EMIs for most of the month but what about those months when you might have some other important expenses or some medical issues where you need money. So in this situation you may not have money for paying the EMI of you loan. This can lead to paying penalties or to legal actions when continued for more than 3 months. So better to keep the EMIs as much as you can afford. It’s a thumb rule of Finance also that the EMI of your personal loan should not exceed 10% of your monthly income.
Keep the Tenure Short
People generally go for a longer tenure to keep the EMI low and even to avail tax benefits. But it’s a very important thing to know that longer will be the tenure, the longer you have to pay the EMIs. The most important thing- the longer you will pay, the more you will pay on the interest. Hence it is always advised to keep the tenure short but that doesn’t mean that you should go for an EMI which you can’t afford. Keep both these points in mind before you for any Personal Loan. There should be a fine balance between the loan amount, the tenure of the loan and the monthly installments.
Read the Loan Document very Carefully
The financial terms used in the loan agreements make the process of reading and understanding the documents a little cumbersome and difficult. However, it makes it crucial for you to be aware of the details mentioned in the fine prints, specifically the penalties and actions for late payments and other charges too. Read each and every page of the documents terms and conditions very carefully. Take help from financial advisor in case you need any assistance in understanding the terminology. Sign only when you are clear about each and every thing mentioned in the document.
Take an Insurance for Your Loan
PPI is one of the important thing about loans which most of the borrowers are unaware of. Term insurance for loans are as such as life insurances. You have to pay yearly premiums and the insurance company will cover you. If you take a loan you always plan to repay it with time but what if the borrower dies or he/she is unable to earn money because of some physical disabilities. When you have insurance for your loan if anything like that happens your family need not to pay the outstanding amount. The whole outstanding amount will be paid by the insurance company. Hence your family can enjoy a burden free future.
So, before you go for any Personal Loan always consider these points. This points will surely help you to have a Happy Borrowing!