A personal loan can help you get quick access to additional funds that can help you in personal or professional situations. A personal loan is an unsecured collateral-free loan that can help you get finance for any of the exigencies that may come unannounced. Be it for a medical emergency, higher education, or a wedding in the family, you can rely on personal loans to help you meet your goals with ease.
As you do not need to submit any collateral for the personal loans that you plan to take, it is important to note here that the lender will assess your financial position and capability to repay before approving the personal loan.
Hence, there are some do’s and don'ts which you can follow for getting a personal loan. These will help you get a deeper understanding of how personal loans work and which factors should be kept in mind before taking a personal loan.
Do’s for Getting a Personal Loan
There are some clear do's which can help you get a personal loan at an attractive rate of interest and terms which are in your favor. These are some points on the checklist which you should tick as you plan to apply for a personal loan. Some key do’s in the process of getting a personal loan are as follows:
1. Do assess your reasons for taking a personal loan
There are a wide variety of options available to a consumer when it comes to taking a loan. It can be a personal loan, gold loan, credit card loan, etc. You need to understand each one of these and assess your reasons for taking a personal loan. This will help you simplify your thought process as to why you should go for a personal loan. You should also consider factors like repayment capacity, monthly EMI, interest rates, etc. before making the final choice on the kind of loan you want to take.
2. Do check interest rates
This one is straightforward. You should check the interest rates being charged by various lenders so that you have a clear idea about what is being offered at what rate in the market. You can check interest rates on websites of various banks and NBFCs. Alternatively, you can also research third-party websites which give you consolidated information about the various interest rates being charged by various entities on a single platform. It is important to note that interest rate should not be the only factor that makes you decide the lender you want to go ahead with.
3. Do check eligibility
You can check your eligibility by looking at your credit reports and using a personal loan calculator to figure out the kind of loan you can take. This will help you figure out the kind of amount you can expect from various lenders when you apply for a personal loan. Do note that the amount may vary from lender to lender depending on their policies but it will give you a fair idea about an estimated amount that you can get when you apply for a personal loan.
4. Do check your debt-to-income ratio
Before applying for a personal loan, do take note of your debt-to-income ratio. It is the amount of debt that you take in the proportion of your income. It is suggested that you keep your debt to income ratio below 40% so that there is no negative impact on your credit profile. Also, it is important to check that you can meet your fixed obligations even after taking a personal loan. It is known as FOIR i.e. fixed obligations to income ratio. After taking a personal loan, you would be expected to pay a monthly EMI in addition to your fixed obligations from your income. Therefore, it is important to do this analysis so that you can meet your day-to-day expenses after taking a personal loan.
5. Do check the cost of the loan
As mentioned earlier, you should not keep the interest rate as the primary deciding factor for selecting the lender. You also need to take into account factors like prepayment charges, processing fees, and other charges and penalties that may apply to you once you take the personal loan. As a result, it is important to look at all the factors including the interest rate and other charges so that you can assess the overall cost of the loan. You should always pay importance to factors like after-sales service and the reputation of the lender while deciding.
6. Do choose the tenure carefully
Selecting the tenure of your loan is very important as it can impact the overall interest outgo. For instance, a personal loan of Rs. 5 lakh for a tenure of 60 months at 11% per annum will attract an interest outgo of Rs. 1.5 lakh with an EMI of Rs. 10,871. However, if the same loan is taken for tenure of 30 months, your EMI would go up to Rs. 19,000 but the interest falls less than half to Rs. 74,000. Therefore, it is important to select the tenure of your loan carefully. You will need to take into account elements like your income, current commitments, and the kind of monthly EMI that you can pay consistently. All these factors will help in selecting the tenure carefully.
7. Do choose the right lender
After you have analyzed factors like interest rate, penalties, and processing fees and finalized the loan amount and tenure, it is now time to select the right lender that meets your needs. While selecting the lender, do consider the reputation of the lender and other factors like repayment flexibility. These will help you select the right lender as per your requirements.
8. Do draw repayment plan
Now that you have selected the lender, it is the right time to draw up a repayment plan that will help you give clarity on how you plan to return the debt that you have just taken. While a personal loan helps meet your professional and personal goals, you need to draw up a clear repayment plan to ensure that you are on course to making a robust credit history. At this step, you will get clarity about how you plan to return the money and also make provisions and set a target for any part pre-payments that you plan to make during your tenure.
Don’ts for getting a Personal Loan
There are some clear don’t which you should steer clear of as you aim to get a personal loan. These are some safety checks which will keep you focused on your goal of getting a personal loan at a low rate of interest and favorable terms. Some of the popular don’ts are as follows:
1. Don’t ignore your credit score
Ignoring your credit score before applying for a personal loan can prove to be a costly move. Therefore, it is important to take note of your credit score because it can help you secure a personal loan at a lower rate of interest and overall terms from the lender. If you ignore your credit score, you may end up paying a higher rate of interest. There are certain ways with which you can improve your credit score. By tracking your credit score regularly and taking steps to improve your credit score, you can secure a personal loan at a lower interest rate.
2. Don’t apply without assessing your requirement
By applying without assessing your requirements, there is a high probability that you may end up with excess or shortage of funds. As a result, you may not be able to either meet your objectives or end up spending much more than you would have because of excess funds. It is always better to assess the requirements properly and take a loan for an amount that is required. Proper assessments of your financing needs will help in initiating the process properly and contact lenders that are willing to extend you a loan as per your requirements.
3. Don’t only opt for the lowest interest
By only opting for a lender based on the lowest rate of interest, you would be ignoring several important parameters that can help you in your loan process. Factors like processing fees, pre-payment charges, penalties, and other charges can add up to a lot of money if the lender is not selected properly. As a result, it is not a good approach to select the lender only based on the lowest rate of interest. You should consider all the other factors as well and select a lender that offers you a value for money package.
4. Don’t borrow from unrecognized lenders
Borrowing from unrecognized lenders is a mistake that can prove to be very costly in the future. Sometimes the nature of the requirement or emergency is such that we end up making mistakes that have the potential to destroy the future. It is always better to borrow from recognized lenders and avoid traps that are too good to be true. It is mainly because you have the protection of regulators that ensure a level playing field for all companies and keep consumer interest paramount. Many peer-to-peer lending networks have mushroomed recently but it is always better to opt for recognized lenders.
5. Don’t borrow from family members or relatives
Borrowing from family members and relatives is a thing of the past. The changing societal ecosystem tends to test the patience of relationships too often when it comes to money. Therefore, it is not a good approach to bank on family members and relatives when in need of additional funds. It does not only have the potential to turn out to be an embarrassing situation for you but can also spoil the relationship if you are not able to pay it back in time. Also, loans from banks and NBFCs are private deals which do not impact your social status among your family members and relatives.
6. Don’t ignore the fine print
Ignoring the fine print is the worst mistake that you can make. Please note that this is a financial transaction that is governed by a set of terms and conditions. To meet all the terms and conditions, you first have to be aware of all the terms and conditions of the loan that you are taking. It is always better to read through all the terms and conditions involving the transaction. It is better to be aware of all the fees and penalty charges that can be levied by the bank or NBFC.
7. Don’t use the loan for non-essential spending
It is important to be clear about the purpose for which you are taking the loan. Although personal loans do not stop you from spending the loan amount on a variety of requirements, you should spend the loan amount for which the loan was taken. It is not a good idea to spend the loan amount on non-essential items. Although it may sound tempting to splurge on some items, remember that these are borrowed funds which are to be paid back to the lender along with interest. Therefore, it is always better to stay focused and use the loan on essential requirements.
8. Don’t share your password or pin with anyone
During the personal loan process, you would be required to keep track of your applications and the other formalities that are involved in the process. However, never share your password or pin with anyone. As it is risky to share passwords or pin with unknown people, you should always avoid giving away your passwords or one-time passwords to unknown people.
These are some do’s and don’ts that can help you get a personal loan with ease. Poonawalla Fincorp can help you get a personal loan with ease with its attractive interest rates starting at 9.99% per annum, minimum documentation, and 100% online application. With a simple 5-step online process and zero hidden charges, you can expect speedy approvals and quick disbursal from Poonawalla Fincorp’s Pesrsonal Loans.
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