A loan allows you to borrow money from your bank or financial institution which can be used to finance your expenses. Personal loans are different from standard loans as they are unsecured. This means they can be taken without collateral, and borrowers become eligible based on their credit history. Their convenience had made personal loans an increasingly popular way to fund borrowers’ travels, medical bills, car payments, and other expenses.
By the end of 2017, the number of people who took loans grew from 5.27 crores in 2016 to 6.54 crores. Additionally, personal loans alone grew by 20% in the year between February of 2017 and 2018. Are you considering securing a personal loan? Here are some rules to keep in mind.
Seek Out Your Best Option
Personal loans come in a variety of options. Picking the best option with minimal additional costs and an attractive interest rate will save you a lot of money. Personal loan interest rates can vary from 10.50%–22% per annum. 11% interest on a loan of Rs 1 lakh is Rs 11,000. Alternately, 22% interest comes up to be Rs 22,000.
Moreover, there are extra loan charges like the processing fee, foreclosure charges, prepayment charges, and additional interest due to late payment. Comparing these prices to find the best personal loan to apply for is wise. Interest on personal loan at different financial institution like Bajaj Finserv MARKETS starts at a low rate of 12.99% per annum, making it an excellent option for those looking to avoid the hefty charges associated with unsecured loans. You also get the benefit of zero foreclosure charges and complete transparency by opting for a personal loan there.
Avoid Approaching Too Many Lenders
Once you have found a suitable lender, it’s best to apply to them only. Avoid applying to multiple lenders at once. Each time you approach a lender or financial institution to secure a loan, your credit score is assessed. A credit score helps lenders know the extent to which a borrower is likely and able to pay off loans.
Quality lenders, more often than not, avoid giving out loans if the borrower’s credit score is bad. If you apply for a personal loan with too many lenders, your credit score may be negatively impacted, as you may be perceived as desperate for a loan. Hence, use your research skills to compare personal loan interest rates and other prices. Then, shortlist the one or two lenders you prefer taking a loan from, before finally applying to them.
Insure Bigger Loans
For large loan amounts, opt for insurance to protect your family’s future by repaying the loan in case you are unable to repay. Many loan insurance plans cover events like major accidents, permanent or temporary disabilities, loss of one’s job, and even death. In such cases, your insurance company will repay your outstanding EMIs.
Keep Your Tenure Short
Going for longer personal loan tenures is tempting for borrowers, as it lowers the cost of EMIs. However, when the tenure is long, the borrower is actually paying a lot more over and above than the borrowed amount. Each year personal loan interest rates raise the amount payable.
It’s more cost-effective to opt for short tenures. With short tenures, your EMI is going to be greater but additional costs will be minimized. When trying to lower your EMI cost, instead of extending your tenure which proves expensive long-term, try this instead. Pay a lump sum of your loan back immediately, and keep succeeding EMI payments regular. This initial expenditure proves useful over time as you save interest charges while keeping your EMI low.
Pay Off Pre Existing Loans Before Securing New Ones
Few things are worse for your credit score than unpaid loans. Unpaid personal loans reflect financial instability and an irresponsible attitude. Your credit score needs to be healthy for lenders to approve of your personal loan request. Unless you have emergency expenses to cover, avoid taking your next personal loan before you pay off any pre existing loans.
In conclusion, follow these rules to secure personal loans to take care of any financial needs you might have. With personal loans, you get the extra benefits of instant application approval, attractive interest rates, flexible repayment tenures, and exclusive personal loans for your goals.
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