Availing a Personal Loan can be for a wide range of reasons. With this wide spectrum of reasons, comes an additional need to be clear about your personal requirements for the loan. Since a Personal Loan is inherently lent without inquiry into spending/investing obligations, it stands to be one of the most widely availed loans in the financial products market.
However, there need to be a few things kept in mind before going forth and availing a Personal Loan, for whatever reason you may need it. These things, posed as questions you need to ask yourself, are described as below. Clarity of need and financial discipline are crucial in improving your loan credit score.
What Term Period will be suitable for my needs?
Most of the personal loans come with a flexible term horizon. That means you can decide upfront when you want to pay back the loan amount. Regardless, the clearer you are about how long you will need the money for can help in avoiding loan default situation.
Say, you’re borrowing for a foreign vacation with your spouse; an ideal term period for the loan can be around 4 months to a year.
Should I go for a Bank or Non-Bank lender?
There are significant differences between taking a Personal Loan from a Bank and an NBFC. The most important being Credit valuation and Interest Rate. Whereas, NBFCs and money lending individuals can be a great source when the need for funds is urgent, it makes a lot more sense to go for a Bank approved Personal Loan if your usage is planned out.
How much would my initial monthly payments be?
Sometimes, you can schedule your repayment procedure according to your needs/capacity. Paying off your loans early can easily reduce your outstanding amount’s interest (like a flexible EMI plan). It is advisable to be informed about how soon you can start repaying your loan back, as it may save fund leakage in case your loan amount cannot be fully utilized.
How will the interest rate be calculated?
Some Personal Loans have a static periodical interest rate, while others vary according to a certain aspect of the money market situation. It is advisable to know exactly how much interest will be levied on the loan amount you borrow, or the upper and lower limits of the dynamic interest rate, so as to remain on the safe side. It is also important to know on what basis/period time the interest gets levied on the loan amount.
Will there be any Pre-payment charges?
If you’re going to apply for a Bank Loan, it is helpful to know beforehand if there will be any pre-payment fees charged. When you set a term period of loan with a bank, you are usually expected to adhere to it. Most banks favor it if you don’t pay your loan back in advance, because you will be paying interest on a loan for a shorter term. It is a loss for the Bank, and such situations usually charge the borrower a penalty.
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