Personal loans are a great way to secure funding to cover your urgent financial needs or to make big-ticket purchases.
With the advancement of digital technology, it has now become easier than ever before to get access to a personal loan.
Many lenders allow you to avail of these online personal loans, making the entire application process quick and convenient.
As these loans are generally unsecured in nature, they have higher interest rates compared to other secured lending options.
Hence, it is important to look at a few different things before you apply for a personal loan online. So, read on to know more about the essential tips that you must consider before availing of an online personal loan.
Build a Good Credit Score
As personal loans are generally unsecured in nature, your credit score holds great value in determining your creditworthiness.
It also indicates your ability to repay the loan. Having a good credit score has many benefits, one among which is that it makes you eligible for most loan offers.
Note that when you apply for a loan, the lender conducts a hard inquiry into your report, which reduces your credit score temporarily.
Naturally, applying too many times in a short span of time will lower your score by a lot and will affect your creditworthiness.
This is why you must only apply if you qualify for the loan. This protects your CIBIL score from dropping any further and minimises the chances of getting rejected.
Compare Interest Rates from Different Lenders
When applying for a personal loan, you would not want to pay more than you need to. So, to avoid any extra costs, it is advisable to conduct thorough research on the personal loan interest rates offered by different lenders.
To compare monthly outflow towards your personal loan, you can use a PL EMI calculator. All you have to do is input the loan amount, interest rate, and tenure to get the amount that you will pay as monthly instalments.
This online tool will help you in comparing different lenders and choosing the one best suited to your financial needs. Moreover, this calculator also plans your budget better to facilitate easy repayment.
Check for Applicable Fees and Hidden Charges
When you avail of any loan, there may be some additional charges included in your total cost of borrowing.
So, it is crucial to look for any excess charges in the name of documentation fees, loan disbursal charges, origination fees, etc.
It is advisable to read the fine print of your loan agreement carefully to assess the amount that you have to repay to close the loan.
Moreover, you can go with reputed lenders as these usually have transparent and fair policies. The risk of hidden charges is much lower with reputed firms, as compared to newer entities that do not disclose all the information upfront.
Assess Your Financial Needs and Check the Maximum Sanction Offered
Online Personal Loans are easily available if you meet the eligibility criteria set by the lender. You can even negotiate for a higher loan amount if you have a great credit score. However, it is important to consider what your actual requirements are before you apply.
Note all your expenses before you apply, finalise the amount you need, and only borrow that amount. Taking a higher loan amount than needed will increase the cost of borrowing as you will have to pay interest on the excess amount too.
If you don’t know exactly how much you will need, but have an estimate in mind, consider opting for a flexi loan. These provisions work like a line of credit, wherein you can withdraw from the approved sanction, and only pay interest on the amount you utilise.
Evaluate Your Financial Capabilities to Decide on the Right Loan Tenure
The length of your repayment tenure is one of the most significant factors that determine the monthly outflow towards loan repayment. If you choose a longer repayment tenure, the total amount to be repaid would be spread across the entire tenure.
This would bring down the amount that you will have to pay as the EMI. However, you will have to pay a higher amount of interest towards the loan.
Alternatively, if you choose a shorter tenure, your monthly outflow would be higher, but you will end up paying lesser in terms of interest.
Having a clearly-drawn repayment plan can help you optimise your outgo, wherein your EMIs are both affordable and cost-efficient.
Consider Loan Foreclosure Terms
Loan foreclosure is the closing of your loan by repaying existing dues before the end of the loan tenure. This helps save on interest as you directly repay the outstanding principal ahead of time.
While it is beneficial, some lenders charge a fee and this is a percentage of the remaining loan amount. So, if you wait to foreclose the loan late in the tenure, you are less likely to make any significant savings.
At the time of applying for a loan, closely read the terms related to personal loan foreclosure. There are some lenders that allow you to prepay your loan without any added cost. Hence, it would be wise to choose a lender that charges zero foreclosure fees if you plan to prepay it in the future.
Stay Alert of Fraudulent and Gimmicky Lending Options
While online loans offer many benefits, there are also various drawbacks that have been experienced with certain digital loan offers.
Many unregistered lenders have captured a part of the online space where they make artificial and gimmicky offers to borrowers.
To avoid any scam or fraudulent activity, make a note to check the authenticity of any lender on the RBI website.
Moreover, you can also find customer ratings and reviews over the internet to assess the quality of their customer service. Only borrow from reputed lenders to ensure a smooth experience.
In conclusion, personal loans help you get funds when you need them the best. However, you must consider the factors mentioned above to keep your cost of borrowing low.
In addition to this, you must have a robust repayment plan in place in order to avoid making a dent in your credit score.
Having a perfect credit repayment history is prudent for availing of a loan, and that too, at lower interest rates.
Hence, use the PL EMI calculator in order to plan, consult the amortisation schedule, and streamline loan repayment.
|Are you an
Entrepreneur or Startup?
Do you have a Success Story to Share?
SugerMint would like to share your success story.
We cover entrepreneur Stories, Startup News, Women entrepreneur stories, and Startup stories
Read more business articles related to Sales, Marketing, Advertising, Finance, Entrepreneurship, Management, Education, and Industry at SugerMint.