Taking a Personal Loan? Top 5 Factors to Ensure You Do Things Right

By SiliconIndia   |   Thursday, March 8, 2018
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A Personal Loan can bail you out of a financially tight situation. Whether you need money to plan out your wedding, or pay emergency hospitalization charges, Personal Loans are your best choice. However, taking a decision to apply for a Personal Loan is a liability and it?s important that you do things right.

When you?re in need of urgent funds, the first option that you look out for is a Personal Loan. What makes Personal Loans the No.1 choice? The reasons are many and they are:

- They do not need a collateral

- They are approved and disbursed quickly

- Most importantly, you can use them as you wish

The above features encourage most people to opt for Personal Loans during a financial crunch. However, before taking the loan, there are certain things that you to keep in mind, to ensure that this liability doesn?t weigh you down:

Key Factors to Consider

  1. Interest Rates

With Personal Loans in demand among borrowers, lenders are offering competitive rates. Since, Personal Loans are disbursed without any collateral, a lender decides on the interest rate based on your creditworthiness.

It is your credit score that plays a decisive role in determining the Personal Loan Interest Rate. To avail an affordable interest rate, make sure to raise your credit score, before applying for a Personal Loan. The interest rate varies across various banks and NBFCs. Before you apply for a Personal Loan, make sure that you compare the interest rates of offered by top lenders before making a choice.

  1. Tenure of the Loan

In addition to the interest rate which determines what will be the loan repayment, the loan tenure also impacts your loan repayment.

Generally, Personal Loans have a tenure ranging between 1 to 5 years. A few lenders offer a 7-year tenure as well. A shorter loan tenure is associated with a high EMI, but the repayment is faster. A longer loan tenure will be easy on your finances due to a lower EMI, but the interest burden will be high, making the loan costlier.

So, before taking a loan, budget your cash flows and decide on the loan tenure.

  1. Loan Charges

In addition to the interest levy, you need to pay certain other charges as well in respect of the Personal Loan that you avail. These include collection charges, loan cancellation charges, documentation charges, and repayment mode swap charges. A penalty charge is also levied if you default on the EMI. Before taking a loan, make sure you have a clear understanding of all the charges that your lender levies.

  1. Loan Processing Fee

Processing charges levied by the lender include costs towards processing your Personal Loan application, carrying out credit checks, and other administrative costs. Normally, these are levied as a percentage of the loan amount. Most lenders levy a processing fee ranging between 0.5% to 1.0% of the loan. There are a few lenders who waive off the processing fees. If you?re taking a sizeable loan, processing fee waiver can result in significant savings.

  1. Foreclosure Charges

Foreclosure charges are levied as a percentage of the outstanding loan amount. In case you have some unexpected gains and want to clear off the loan, you can foreclose the loan. However, some lenders levy a charge for prepayment and foreclosure. It?s best to scout for lenders who do not levy loan foreclosure charges.

The easy availability of Personal Loans should not entice you to avail them at the drop of a hat. Remember that a loan is a liability on you and multiple outstanding loans increases the risk of default. This can adversely affect your credit score and you?ll have difficulties getting another loan.

Also, don?t consider just one of the above factor while deciding on the lender. Considering all the factors are important to ensure you do things right.

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