A personal loan can pull you out of a difficult situation or push you into one, depending upon how financially responsible you are. Getting a personal loan is easy, but it comes with great responsibility, hence you should consider the following things before applying for one.
The purpose of taking a personal loan.
Before you apply for a cash loan online, take some time to ponder if you even need a personal loan. It is suggested that you apply for only the amount you require for immediate use, rather than applying for a larger amount that might lead to overspending. Because there’s a chance you won’t be able to pay back the money you borrowed.
The loan amount.
The loan amount for an unsecured personal loan is determined based on factors such as your credit score, current income and liabilities like credit card dues etc. Typically the loan amount provided ranges from 50% to 60% of the borrower’s annual income.
Thoroughly read the loan agreement.
Remember to carefully read the contents of the loan agreement and understand all the terms and conditions of your loan. Be sure to read the fine print so that you are well informed on the details of your loan. This will help you in making payments on time and avoid penalties.
Check your credit score.
Before approving your application for a loan, the lender will inspect your credit report to determine your eligibility. Having hard credit checks can hurt your credit score and every time your credit report is inspected, your credit score falls. Hence before applying for a loan, check if your credit score meets the lender’s eligibility criteria to dodge unnecessary credit checks.
Estimate the amount you can borrow
It is necessary to estimate how much loan you can afford to repay so as to not bite off more than you can chew. You must analyse your monthly cash flow and calculate the amount you can dedicate to make payments for your loan. You can also figure out if there’s any money left over after deducting your monthly expenses and contribute it to your monthly instalment payment.
Affording the Interest Rate
The interest rate that you will receive depends upon your credit score, repayment ability etc. But if you have a great credit score, you will be charged less interest and vice versa. It is essential to find out if you can afford the interest rate and you can do so by calculating your EMIs.
Some additional charges can be applicable on a personal loan such as processing fees, late payments fees and part/prepayment fees. These fees vary from different banks and institutions, you must compare these fees and choose the option that suits your best.
Negotiate interest rates
Having a good credit history helps you negotiate the interest rate on your loans. You can take advantage of the active competition between banks and other financial institutions and decrease your interest rate. A small reduction in interest rate can substantially save you thousands of rupees.
How can you qualify?
Once you have made your decision to apply for a cash loan online, it’s time to determine how to qualify for a personal loan. Assess your financial activities and eligibility before applying for the loan. In case you have a bad credit score or don’t meet the eligibility criteria of the lender, it is better to wait and work on your credit score instead of lowering it by allowing unfruitful credit checks.
Consequences of failure in repayment
Defaulting on EMI payments or failing to return your loan on time might have significant consequences not just on your credit score but also on your reputation. An individual who fails to pay off his/her debt is often deemed irresponsible which can create problems for you when applying for a loan or a job. Not just that, you will also be penalised on your present debt, increasing the amount owed and thereby increasing your financial burden.