Few Smart Things to Consider Before Applying for a Personal Loan
There has been a remarkable rise in the popularity of personal loans as a financial solution, owing to its unsecured nature. Even though a historic economic slowdown has weakened the general trend of credit growth, the personal loan segment continues to flourish.
- The estimated CAGR for transaction value in the personal finance segment is expected to be over 45% for the next four years (2020 – 2024).
Financial experts and notable institutions attribute this rising trend in the personal loan segment to increase in NBFCs and modern fintech companies. These financial institutions’ offering of small-ticket personal loans have considerably driven growth in the sector and encouraged borrowers to avail credit more confidently.
Nevertheless, before you apply for a personal loan, it is essential to make some considerations so that you can ensure a well-informed decision and sound approach.
Things to consider before applying for a personal loan
Choose an appropriate loan amount
When you apply for a personal loan, it is critical that you consider a suitable loan quantum that you need to avail. Therefore, chalk down a list of monetary obligations such as home renovation and debt consolidation and prioritise which ones you need to meet straight away. A lack of clarity concerning why you want to avail a loan is essentially among a few things to avoid while availing a personal loan since it shows poor financial planning.
Subsequently, you must estimate the costs and charges that you need to incur and compute the total loan liability. Then assess your financial footing and see where you stand with regards to probable EMIs using a personal loan calculator. Based on your assessment, determine a loan amount that fits your requirements as well as your affordability.
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Determine a suitable repayment tenor
Another critical consideration before going for a personal loan is determining a suitable loan tenor. The loan tenor you choose directly influences the EMIs payable. An extended tenor brings down your EMI outgo as opposed to a shorter tenor that entails higher EMIs. But, another thing to consider here is when you choose a longer tenor, the total interest payable will be higher as compared to when you go for a shorter tenor owing to amortisation schedule nuances.
Thus, once you have decided on a specific loan amount, utilise a loan calculator to check the EMI amount as well as the total interest outgo against different repayment periods. Subsequently, assess your monthly disposable income regarding the instalments so that you can manage your personal loan EMIs efficiently while ensuring minimised interest outgo.
Check credit report
When you apply for a personal loan, the concerned financial institution will assess your credibility as a borrower based mainly on your credit score. Since this score quantifies the items in your credit report, like your history as a borrower, your usage of and tendency to rely on credit as well as your repayment history, it portrays a substantial picture of the risk you pose to a lender.
Therefore, before you go for a personal loan, ensure to check your credit report for any discrepancies and anomalies that can lead to a plummeted score. A robust credit score, especially above 750, can also allow you to avail better personal loan interest rates. A low score, on the other hand, might compromise your eligibility.
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Other costs associated with the loan
Apart from interest, you also need to incur a few other charges when you avail a personal loan. It includes processing fees, penalty charges, foreclosure fee, etc. Therefore, you must examine these costs in advance before you apply for a personal loan. It’d allow you to approach borrowing more soundly and considerably.
Lastly, when you apply for a loan, ensure to look for offers. Specific financial institutions such as Bajaj Finserv make the borrowing process prompt and more convenient with their pre-approved offers on loans. These offers apply to a wide range of credit facilities such as personal loans, business loans and credit cards. You can provide your mobile number and name to check your pre-approved offer.
Still, availing a loan is a decision that has a critical bearing on your financial standing as well as your credit history. Therefore, before you avail a personal loan, making all the necessary considerations to ascertain a sound approach and a well-founded decision is essential.