A personal loan will not only help during emergencies but in many other times as well. It is the fastest way to get the cash you need without pledging any valuables as collateral. However, one should always remember that personal loan is one of the priciest forms of loan. So before you decide to avail a personal loan, take time to consider these things.
- Check your credit score
It is best to first check your credit score before you apply for personal loan. If you have a good credit score, it is easy to get the loan at a better interest rate. Banks either reject loans for lower credit scores or charge higher interest rates.
- Consider your finances
Always consider your present and future financial condition before availing a loan. A personal loan will turn your financial condition upside down if it is not managed carefully. Make a budget of your current monthly expenses, consider your savings and check if you can accommodate the new EMI of the personal loan.
- Look out for alternatives
The personal loan interest rates are higher compared to other secured loans. A Gold loan or a top up on existing home loan are wise alternatives to personal loans as they have comparatively cheaper interest rates.
- Borrow only what you need
It is not advisable to borrow more than what you need. Evaluate the purpose for which you need the loan and then figure out the amount that you want to borrow. You should consider your needs and not your eligibility to avail a personal loan.
- Shop around for better deals
Shop around for better interest rates and other facilities. Compare other fees and charges other than interest rates. The lowest rates of flat interest rates might be tempting as compared to reducing balance rate. But this does not mean you will be paying less. So, do your math properly.
- Read the fine print
Always read between the lines and all the terms and condition to know how it works out best for you. Other than interest rates, there are other charges such as prepayment fee, late payment fee, processing fee etc. These hidden charges can catch you off-guard if you miss out to check them in the beginning.
- Think about the worst case scenario
Before going for a personal loan you should think through how it would impact your financial situation if you happen to miss paying your EMIs on time. If you default your loan it will lead to a pile of debt and also impact your credit score.
- Avoid Add-On Offers
Banks pitch for additional products such as accidental insurance while you avail a personal loan. There might seem like good offers as you might not have to pay anything upfront. However, remember that the insurance premium will get added to your EMI. Apart from the burden of paying the EMI amount for just the loan, you will also be paying for the insurance which might not fit your bill.
Do not avail a personal loan until or unless it is an emergency. Always read the fine prints of the loan. Do not just consider the rate of interest but evaluate the total cost and all other charges while comparing.