Personal loans sound lucrative but there are things to consider before and after taking a personal loan in India. Here we will cover point by point what you should do before and after.
We all run out of money at some point in our lives. We looks for a friend or relative that can assist us during this difficult time. If no one is there to assist you at such time, the situation becomes tougher. Personal loans can be useful in such situations. It is also an excellent way to generate funds quickly in an emergency.
You’ve probably seen a lot of advertising promising you a speedy personal loan with a low-interest rate. Personal loans come in a variety of forms, including travel loans, medical loans, education loans, marriage loans, home renovation loans, and credit card refinance loans. It is, however, your obligation to verify the veracity of those statements before proceeding with any financing.
Things to consider before and after taking out a personal loan: Before applying
Before you apply, make sure you are eligible.
If your credit card or loan application is denied, Trans Union CIBIL records it (and other credit bureaus). When this occurs, other lenders become apprehensive, and you may have difficulty obtaining a loan in the future. That is why, whenever you consider taking out a loan, you should first determine your eligibility. “To assist customers, most lenders feature a free eligibility calculator,” explains Aditya Kumar, Founder and CEO of Qyberra.com.
Take out a personal loan for investment purposes only.
Personal loans are unsecured loans, hence they have a high-interest rate. That is why you are encouraged to employ personal loans to build your business rather than investing money in stocks that do not appear to be working in your favour.
Borrow only when you have the ability to repay it.
Before applying for a personal loan, you should examine your current debt-to-income ratio. The total EMI of your loan should ideally not exceed 40% of your income.
Take out a short-term loan
Because a personal loan is an unsecured loan, its term is longer than that of other secured loans. Most lenders accept a limited amount (up to 5 to 10 lakhs) that you must repay within 2 to 4 years.
Carefully read the Terms & Conditions
You’ve probably encountered paragraphs printed in small letters on official documents that you tend to overlook. They are written there for a variety of reasons; never disregard them. Many businesses write the most crucial information in such small letters. It should be noted here that if you want to protect yourself against embezzlement, you should thoroughly study such documents before signing them.
If you require a small sum, apply for an online loan
Aside from banks, there are other NBFCs that offer online loans with less paperwork. If you only need a modest amount and don’t have much time, an internet loan is an ideal solution. There are some good apps to consider online which offer an online loan that can range between Rupees 10000 to 300000. Some examples are Kreditbee, Mobicred, Navi etc.
Things to remember after acquiring a loan
On-time payment
Late payments by you can have a negative impact on your CIBIL score. Late payments can pose problems in the future, as you may have difficulty obtaining fresh loans. You may also be required to pay additional interest as well as a penalty if you make a late payment
Never use your retirement funds to pay off personal debt.
If you haven’t paid your personal loan instalment in a long time, it can become a major issue for you. Irregular instalment payments not only lower your CIBIL score but also increase your stress, which is bad for your health. Keep in mind that you should cast your future in doubt in order to correct mistakes made in the present. Never utilise your retirement funds to repay a personal debt. Your retirement savings is your old age’s stick; use them wisely.
Only return the money when it is possible
Bonus for Diwali, Salary Increase, Promotion, Freelance Work “There may be times when you have additional money to pay off your personal loan instalment. “By doing this, you will not only be able to avoid paying extra interest, but you will also be able to save from your wage in the future,” Kumar explains.
Keep a watch on interest rate changes
According to RBI regulation, the base rate frequently varies, affecting the interest rates charged by lenders. If another lender offers you a loan at a lower interest rate, you can have your loan refinanced. However, before making such a move, consult with your loan manager because you may encounter one of their valued customers that they do not want to lose.
Before taking out a new personal loan, pay off the existing one
Taking out numerous unsecured loans can work against you. People frequently take out personal loans despite having a sufficient income, causing their CIBIL score to fall. You may find it harder to obtain loans in the future if you do this.
