The most frightening aspect about financial emergencies is that they occur unexpectedly. While having an emergency fund set aside for such situations is the best thing to do, depending on the nature of the financial disaster, you may not have enough. You can still achieve these criteria with the help of credit cards and personal loans.
One of the major advantages of Personal Loans is that, because they’re unsecured loans, they can be utilized to satisfy any financial need – whether it’s for home renovations, medical emergencies, or supporting higher education. Furthermore, you will not be required to put up any collateral in order to obtain the loan. Let’s go through some of the dos and don’ts to remember.
Do Read The Fine Print
Before deciding on a Personal Loan, there’s probably nothing more important than reading the fine print. Read up on important factors such as the required repayment plan, the maximum loan tenure, any income cut-off requirements, and how long it may take to get your loan approved.
Pay attention to any processing fees as well. Some loans have extremely low interest rates as part of various promotions; however they are compensated for by significant processing fees.
Do Check Your Credit Reports
The interest rate you get on a personal loan is heavily influenced by your credit score and credit history. Credit is used by banks as a risk indicator. If you have previously made timely payments, you are more likely to repay your debt. As a result, the better your credit, the lower your interest rate will be. Rates will often vary from 4% and 36%.
Take a Good Look at the Fees
Examine your loan offer with a fine-toothed comb before accepting it. You should read the contract carefully to ensure that you understand everything; otherwise, you may be compelled to pay unexpected expenses in the future. The following are the most critical factors of the personal loan to consider:
- Repayment period:
- Can you afford the payments on a monthly basis? Do they fit into your spending plan?
- Whether it’s secured or not is a question that has to be addressed. Will you be required to put up collateral for the loan, such as your bank account? Is there no need for collateral?
- Do you have to pay an upfront charge for the loan, and if so, how much does it cost?
- Prepayment penalty
Speak With a Few Different Lenders to Get Pre-Aualified
Pre-qualification is a process in which you self-report your financial information and preferred loan terms in order to get an estimate of what type of personal loan you might be eligible for. This stage differs from getting a pre-approval or applying for the loan because it does not need the lender to check and verify your paperwork, and it does not result in a hard credit inquiry, which could lower your credit score by a few points. Pre-qualification does not imply that you will be approved; it simply indicates whether you are likely to be approved and what your loan terms will be.
Don’t Take Your Credit Score for Granted
You’re CIBIL score is a reflection of your credit history and a predictor of whether you will be able to repay the loan on time. It’s crucial in assessing whether you’re eligible for a personal loan.
Don’t Borrow Very First Loan That Catches Your Eye
Before agreeing to a loan, shop around. Personal loans are now available from a variety of sources, not simply the traditional banks. Credit unions, community banks, online banks, and online lenders, among others, may be able to offer you a better rate than your bank.
Depending on the requirements, elements like income and credit are weighted differently by each lender. As a result, you may find that one bank doesn’t care if you were laid off from a job, while another doesn’t because you have “great” credit. It all depends on circumstances outside your control, so be sure to consider all of your possibilities.
Don’t Ignore Loan Repayments
While asking for a loan has no bearing on your credit score, defaulting on a loan will. With a low credit score, you may find it more difficult to obtain other important loans in the future. Use a Personal Loan EMI calculator to obtain an estimate of your projected monthly repayment before signing on the signed line for the loan. Check to see if you’ll be able to afford these payments on a monthly basis. If not, you might want to think about extending your loan term or lowering your loan amount.
Don’t Take Out the Biggest Loan You Can
We don’t advise taking out a large loan simply because you can. If you lose your work abruptly, a loan payment that appeared affordable at the time of approval may turn out to be a mistake later. For example, it suggests that people not take out a loan that consumes more than 5 to 10% of their monthly income. Over borrowing is just as risky as paying for something you can’t afford outright.
Always Prioritize Your Needs and Don’t Put Over Your Loan on Luxuries
Before you take out a personal loan, you should understand why you’re borrowing. Some issues can be solved without the use of borrowed resources. Taking a personal loan is not the best choice if you can dig a little deeper into your pockets or emergency savings.
Borrowing without a good reason is a risky move that could lead to even more financial difficulties. It’s a good idea to figure out why you’re borrowing and make sure you don’t have any other options.
Don’t Take Out More Money Than you Need
Having money, whether earned or borrowed, is enticing. Some people are enticed to borrow more than they require, just wasting some of it. This is also an unneeded risk that could lead to a worsening financial situation. Don’t take out more debt than you need.