Personal loans are of great help when you need money urgently to offset some high-interest debt. Unlike in the past when personal loans were very rigid, today he controls are very flexible. In the past going for a loan could be equated to sinning. The tables have turned and loans have become a normal part of life. You can get a loan for practically anything from marriage, celebrations, and vacations. It takes simply half an hour for a bank to approve your application and wire the amount to your account. All that’s required are your basic documents and financial credit score rating. In several cases, the bank disburses loans that are higher than what one is eligible to. Provided you are eligible, the answer is always yes. Here are factors to consider before getting a loan.
What is Its Purpose?
Most people ignore the differences between lifestyle based needs and basic essentials. To get it right we must understand the differences in lifestyle and essential needs. Always remember that personal loans carry high-interest rates, not including other charges, In that regard, avoid taking personal loans where possible. There are other options available such as taking loans against security, going for bank overdrafts and other alternatives that have lower interest rates. Any unsecured loan option will attract high interest as there is no collateral supporting it.
Ability to Repay
Before contemplating taking a personal loan you must carefully mean you the personal capability of repaying the loan. The EMI should not exceed 10 percent of your basic salary. It should an amount within your capacity and should not strain your budget.
Your Credit Score
Throughout your life, try your best to maintain financial discipline. In the long run, it can help you get a loan. If your record is healthy your chance of getting a loan are improved greatly. A good credit score helps negotiate a low-interest rate with the bank. Banks will not have much problems giving out personal loans provide your credit history is solid.
Understand the Interest Charges
The allure of low-interest rates on loans can be very attracting. However, take time to understand the full details. You might receive an offer of low-interest rates yet it’s a flat interest rate that charges you more when compared to the diminishing return rates. Flat rates are charged on the full amount until the exhaustion of the loan while the diminishing return gets charged on your outstanding balance for the specified period.
The Charges
The interest charged takes the biggest cost share of personal loans. Other charges are processing fees which can be anything from 0.5 to 3 percent depending on the financial institution. Once your loan is approved, the procession fees are non-refundable. If the loan application is rejected you can get a partial refund in some cases. There is a prepayment rule that prevents the bank from losing out in case you repay your loan before maturation of its tenure. It will be roughly 5 percent of the loan amount. Other changes are minor such as documentation, etc.