Paychecks are sometimes not enough to meet financial requirements, especially during emergencies. This is when loans come in handy. Timely credit acts as a buffer against draining your reservoir of savings.
Loans are financially beneficial when you have to meet fundamental responsibilities such as organising a wedding, financing children’s education, buying a home or for medical emergencies.
These days, banking institutions have made loan disbursals shorter and hassle-free. Personal loans can be availed in a jiffy. Banks are also walking the extra mile to attract customers with customised or pre-approved loans.
However, it is essential you do your homework keeping in mind your financial needs and affordability. This is because we could be carried away with luring advertisements put up by lenders.
Here are a few tips to remember while applying for a loan:
1) Clarity regarding loan purpose: You may want to differentiate whether the intention of seeking a loan is need-based or greed-based. A loan for financing a wedding, or children’s education or medical emergencies is warranted. However, loans for aspirational needs like an expensive vacation or luxurious amenities that you can do without could be a regretful move. Interest rates and other charges on personal loans can be hefty and this could increase the probability of remaining trapped in a debt cycle.
2) Conduct thorough research: It is vital to do your homework to know the best option on interest rate and tenure. Also, you may want to be updated on appropriate modifications that the Reserve Bank of India (RBI) implements from time to time regarding interest rates.
3) Compare interest rates: Personal loans do not require any asset to be kept as collateral. This increases the lender’s risk, and hence personal loans have a very high-interest rate. It is therefore advisable to compare interest rates offered by different banks before applying for a loan scheme.
4) Analyse your credit score before taking a loan: Your credit history and score has a significant effect on your eligibility for a loan. A bad credit score can break your chances of getting a loan. Lenders look into your credit scores to assess how you manage your finances, especially regarding repayment. You may want to check your credit score with credit bureaus such as CIBIL to analyse the prospects of your loan application. A poor ating can get a loan plea rejected while a high score allows you to leverage interest rates.
5) Assess your repayment ability: It is a good idea to evaluate your ability to repay your EMIs before deciding on a loan scheme. Calculate the EMI for various loan options, and select one that you can pay every month without creating affecting your budget and overall financial health.
6) Avoid applying for multiple loans: Applying for numerous loans to various lenders can adversely affect your credit score. It creates doubts regarding your repayment ability. Moreover, innumerable checks on the credit score by lenders can cause your score to dip, thereby increasing the risk of being rejected in the future as well.
It is best to decide on a personal loan scheme after thoroughly analysing all the options. Given the numerous factors involved in a personal loan, you may want to tick all the right boxes and avoid affecting your financials once a loan is disbursed.