1. Loan amount
Before applying for a personal loan, you will need to keep the following factor in mind:
- Requirement: Total amount required by you, because this money bears interest and you don’t have to take money which will add to your load.
- NDE: Calculate the amount you will pay as an EMI, in order to balance it with the monthly debts.
- Comparison: Compare different loans to get the right one.
2. Reason for taking out a loan
Applicants must have a good reason for applying for a loan because lending is heavy business and with a lot of competition in the loan market, companies try to entice the customer to take it. Here are the reasons for taking out a loan:
- Requirement: One can apply for a personal loan to meet a requirement that needs to be fulfilled immediately. Buying a property or a vehicle is not one of them, as there are separate loans available at a lower interest rate for such requirements. Personal loans are contracted for more personal needs such as medical expenses, a wedding.
- Balance Transfer: One can request a balance transfer if another financial institute gives the same amount at a lower interest rate.
- Refills: If the need for money has increased and the applicant has a good relationship with the bank, the bank will provide additional loans at a lower or the same interest rate.
- To improve credit score: A loan can also be taken to improve credit rating, as paying the loan on time and closing it will improve a person’s credit rating making room for larger amounts.
4. Capacity to pay
- Paying off the loan early is the best way to visualize your loan repayment. A shorter repayment term may mean that your lender will charge you more. It would therefore be fruitful to repay your loan in a timely manner by means of equivalent monthly payments.
- Missing your loan payment schedule is likely to hurt your credit score, a key metric used by lenders to determine if they want to give you a loan. It is essential that you assess your financial strength in the event of sudden unfortunate circumstances such as loss of your job or business losses before taking responsibility for the loan.
5. Fees and Penalties
Several companies in India offer loans very aggressively. Although the interest rate may seem like the first thing on your checklist when taking out a loan, it is not the only important factor. Here are the factors that need to be checked.
Processing fee: Sometimes the interest rate may seem competitive, but borrowers forget to look at the processing fees which can sometimes reach 6% of the loan amount.
Pre-closing costs: If the borrower wishes to close a particular loan by repaying it in full, a fee will be levied by the bank for this. Always opt for a loan that has minimal or no pre-closing fees.
Prepayment charges: Like pre-closing, one can also pay part of the loan before the scheduled time.