Nowadays an increasing number of consumers are taking personal loans either to pay off their debts to meet there some financial need. Personal loans help the people in meeting their shortfall in any kind of big purchases such home renovation, buying a car, or for children’s higher education. People don’t hesitate in adjusting EMIs in their monthly expenses so that they can pay off the loan.
Here’s a quick guide on the personal loan for understanding it better.
What is a Personal Loan?
It is just an unsecured loan that is taken by individuals from a bank or a non-banking financial institution in order to meet their fund requirements. This loan is provided on the basis of some key factors such as your payment history, credit score, credit & employment history, income level, and repayment capacity.
A personal loan is not secured against any asset like other loans such as car or gold loan. In case of default in payments of the loan, the lender cannot auction anything. Even the interest rates on personal loans are higher than other loans of car or home because of the greater risk involved in it.
Though non-payment of personal loan will not auction anything of yours it will impact your credit report badly and bring down your credit score. This will ultimately result in causing problems when you apply for any other loan or credit card.
Purpose of taking Loan
Your personal loan can be used for fulfilling any of your financial need such as home renovation, going on a vacation, children’s higher education, marriage, or buying any electronic gadget. It can also be used for meeting any emergency medical expense. Or any other emergencies. Some people use it for paying off their debts.
Although it varies from bank to bank, the main parameters that are required include age, income, occupation, ability to pay back the loan, and place of residence.
Source:- Insider’s Guide
For availing the personal you must have a fixed source of income, whether you are a salaried person, a professional, or a self-employed businessman. For taking the loan you must have to meet all the eligibility criteria of the loan.
Things to consider
There are many things that you will need to consider before going on applying for a loan. These factors include:
- Choose the best deal after complete market research. Don’t take a decision that will make you repent.
- Make sure to check your credit score by studying your credit report. You can get this report for free once a year from the credit agencies such as CIBIL.
- Don’t use your personal loan for any such thing that is not necessary. Use it in a way that will only help you.
- Make sure to make your payments in full and on time. This will make your credit history good and help you in future when you will apply for any credit card or loan.
- Take only as much loan as you require and you can pay off well in time. Think about your needs, not the eligibility as you may be eligible for more loan.
- Read all the terms & conditions carefully so that you should not miss any important information.
- Always choose for fixed interest rates so that you can have a fixed amount of installment that will remain the same throughout the loan term.
- Also, go through the charges that you will need to pay for the loan, prepayment charges, early loan waiver charges, processing fees and many other. Though there are banks that don’t charge the pre-closure fee such as Axis Bank. So, you can compare & make a decision.
From where to take
You can take a personal loan from any bank or financial institution in which you find the low-interest rate and low EMIs. You can also check this online and compare the loans from various banks and take your decision.
Benefits of personal loan
The one and the main benefit of the personal loan is that it is helpful in meeting your shortfall of finances in anything and also meeting your emergency expenses such as medical expenses.
Risks with a personal loan
- The personal loans are very easy to get and as easy to spend also as no one is looking at where you are spending your money. So there are chances that you may not spend it wisely.
- Another risk attached with a personal loan is its repayment. If you will not pay it back on time and in full, then it will impact your credit report and lower down your credit score.
- The last risk is that it could make a bad financial habit. Avoid taking loan your habit otherwise, you will never be able to come out of your credits.
Personal loans are about choosing & spending wisely and managing your finances in a way that a loan will become a bliss, not a burden.