Personal loans are commonly used because of their main characteristic: flexibility. It offers flexibility in repayment, duration and usage. Moreover, financial institutions grant this loan without asking you to put any assets as collateral. And because of all this, the number of people turning to personal loans has increased lately.
However, before applying for this loan, you should ask yourself several questions described below.
Q.1. Why do I need a personal loan?
There is a motive behind every move we humans make. The same goes for a Personal loan. If you’re looking for a loan to cover your day-to-day needs, think about how you’ll pay off your debts. Think twice if you are looking for funds to spend on unnecessary things that are not needed.
Q.2. Do I really need a personal loan?
Borrowing funds from a lender means that you are bound by certain conditions. This means that you will have to devote part of your future income to paying your monthly debts. If you have a limited income and don’t see any improvement in your finances going forward, think twice. Never apply for this loan if it stresses your budget.
Q.3. What other options do I have?
Before finalizing your decision to take out a loan, research the options available. It is best to wait if you are expecting a festival or performance bonus from your employer. Likewise, if your investment is maturing and you are going to get a large sum out of it, instead of taking out a loan, use it.
Q.4. What is my credit rating?
Financial institutions assess your credit file. If it’s in bad shape, they’ll deny you a loan. And if not, they will charge you high interest to cover any potential default risk.
Therefore, examining one’s credit score before applying for this loan should be the first thing to do.
Q.5. Do I have documents proving my income?
In India, individuals earn through several sources. However, they have no document justifying their income. Financial institutions are not only interested in your income, but also want to check whether you earn regularly.
If you’re new to your job, spend some time in your existing organization and don’t forget to ask your employer to share a payslip each month to your email address.
Q.6. Should I add a co-applicant?
The answer to this question depends entirely on your credit profile. If your income is insufficient to meet the lender’s minimum eligibility criteria, adding a co-applicant can work in your favor. However, keep the two conditions below in mind if you do so.
- The co-applicant must earn a consistent income and have a clear debt repayment history.
- They are also responsible for paying the EMI.
Q.7. Is the IME in my budget?
To get the answer to this question, use a personal loan EMI calculator. This will help you determine your financial capacity. In addition to that, you can also use this tool to draw comparisons between different lending institutions.
Q.8. Can I repay my debt without difficulty?
To get the answer to this question, review all of your existing financial commitments. Make a list of all essential expenses. Some of the expenses you cannot afford to overlook are outlined below.
- Child’s school fees
- Payment of utility bills
- Housing and water tax
- Insurance premium
- Emergency fund to meet unforeseen expenses
- Household expenses
After deducting these expenses from your monthly income, if you still have 50% of your income left, go ahead with your decision to take out a loan.
Q.9. What duration should I choose?
Use a EMI Loan Calculator choose the ideal mandate. The term of the loan has a direct relationship with your interest rate and EMI. When you choose a shorter term, the EMI is increased, but the interest rate will be reduced. While a longer term reduces the EMI, but you will still end up paying a higher interest component.
Q.10. Can I block my loan?
Another crucial question you should ask yourself and the lender is related to foreclosure. Many financial institutions only allow prepayment if the borrower has successfully paid the first 12 months of EMI. In addition to this, you should also check the foreclosure charges with the lender.
Q.11. When will I be required to pledge my personal property to the lender?
This issue comes to picture when you do not meet the minimum eligibility requirements of the lender. As a result, you pledge your personal assets to ensure that the lender’s funds will not be lost in the event of default.
The aforementioned questions for yourself provide answers to a variety of scenarios. It helps you determine your need while revealing whether or not you will be able to repay your personal loan.
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