Getting a personal loan is one of the best ways to get rid of a financial crisis; this type of loan being of unsecured type does require you to provide any collateral or security. On the other hand, a personal loan can be used for catering to a plethora of expenses including payment of medical fee, education fee, home renovation purpose or even for paying off the credit card bill. Owing to its unsecured nature and flexible usage, personal loans have become a popular loan product in the Indian financial market. Not just banks, even NBFCs and online lending platforms in India have made it possible for a salaried professional to avail an instant personal loan. With the digital revolution, applying for a personal loan has become simple as one can now submit the loan application form online. With instant approval, lenders in India have started offering quick disbursals too. Due to these benefits, getting a personal loan through NBFC’s is one of the preferred finance options in India today. However, before sealing the personal loan deal, you must follow specific rules to ensure you make the right pick and not end up in a debt trap instead. Read this article to understand the five thumb rules you should follow when applying for a personal loan.
Calculation Of The Interest Rate
Personal loans in India are offered at varying interest rates that differ from lender to lender. Based on your credit score, age, employment status, income and other criteria, lenders in India decide the interest rate. Secondly, a personal loan is offered at a fixed and floating interest rate. Fixed interest rate implies that the rate of interest of the loan stays the same for the entire loan tenure, whereas, floating interest rate means that the rate can change anytime during the loan tenure owing to change in the market conditions.
Opt For Insurance
Getting a personal loan is a convenient way to get rid of debt or to meet urgent financial requirements. Since this type of loan is of unsecured type, you don’t have to pledge any of your assets as security to the lender. However, in case of sudden job loss, permanent or temporary disability or death, repayment of the monthly EMIs can become difficult. Therefore, when opting for a personal loan, it is also advisable that you opt for personal loan insurance that takes care of your monthly EMI repayment in case of any unfortunate occurrences.
Don’t Borrow Money More Than You Can Repay
When borrowing a personal loan, ensure that you don’t live beyond your means. This implies that you don’t borrow more than you can repay. As per the thumb rule, the EMI you pay towards your loan should not exceed more than 15% of your net monthly income. While in times of an emergency, taking a personal loan is one of the convenient options, but not being able to repay the EMIs can further land you in a debt trap. Ensure that your loan to income ratio is not high as it can have a significant impact on your credit score, which can further dent your chances to secure a loan in the future.
Check On The Additional Charges
Lenders in India charge a certain amount of processing fee towards the personal loan amount you avail. Keep in mind that the loan processing fee varies from lender to lender and also depends on the loan amount. Hence, before you zero down on a specific personal loan lender, always check on the processing fee charged as a less fee can help you save a big amount of money. Also, check on other charges such as foreclosure charges, part payment and late payment fee and others. Foreclosure charges are applicable in case of early repayment of the loan. Hence, if you think that you would be able to repay the loan before the end of the tenure, then it is advisable you for a lender offering low foreclosure or part payment charges.
Don’t Make Too Many Applications At Once
Your lookout for best personal loan interest rates can be a great display of your credit hungry behaviour. It can decline your chances to avail a loan in the future. Being a personal loan applicant, you must understand that each time you make a loan application, lenders check on your credit score to get an idea of your credit behaviour. Approaching too many lenders at once can dent your score, and that’s why it is best to apply for a personal loan online on a platform like Upwards to get the best interest rate.
Apart from the above tips, also ensure that you repay the loan EMIs on time to increase your credit score to be able to avail more unsecured loans in the future.