A personal loan is an unsecured loan which can come in very handy during the times of need. It has the potential to rescue you out of an immediate financial requirements. This is because it gets processed quickly and the amount is transferred into your bank account, thus enabling you to meet your financial requirements.
Right Time and Right Reason
The first thing to do is to analyze your current and future financial status. Analyze the reason for availing the loan. If it is not for an immediate need, just postpone. If the reason is valid and needed, check for the right time to avail it. Monthly EMIs should neither become a burden nor disturb your regular commitments. In short, a personal loan has to be availed only for a valid reason and at the right time to avoid unnecessary financial stress. After all, a loan should be a tool to solve your financial issue, not create one!
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Interest Rates:
As personal loans are unsecured, they attract a very high interest rate. This is because you need not keep any asset as collateral. This also does not give the lender any guarantee of receiving the amount back. Hence, the nature of this loan also makes it that much more difficult to obtain as compared to getting a secured loan disbursed into your account. You may either apply for a fixed rate or a variable rate when it comes to choosing the type of loan.
Read loan agreement details carefully: You should always read the loan document in its entirety, including the fine print to know all the charges, fees and penalties for non repayment. This will help you not to be caught off-guard later. Do not rely blindly on the bank relationship manager who might not make you aware of some important details.
Penalty Charges:
In case you are not able to pay your dues on time, there is generally a very heavy penalty that is charged on your loan account. You should find out about the exact details regarding the penalty that may get levied in case of any such circumstance arising in the future. You want to ensure the affordability factor of the loan right from the beginning.
Credit History:
Before applying for the loan, you should check your credit score in order to know the likely prospects of getting the loan sanctioned. Most importantly, if there are any pending credit card dues, then you should immediately pay them off as this will reflect in your credit history while your application is getting processed.
Know the process of deferment:
This would come handy in case you have a temporary cash crunch leading to inability in meeting repayment obligations. While the going may be good when you decided to access the loan, there is always the possibility of things going wrong in future. A loss of job or another emergency can create short-term cash crunch and inability to meet payment obligations. You should be aware of how to handle such a situation at the time of accessing the loan.
Think of the consequences of not being able to repay loan in time:
Loan default can have serious consequence. Being aware of the consequences can itself make you a disciplined borrower and help you work within your means.
Remember defaults can mess up your long-term credit score too:
Besides brush with the authorities and courts, defaults will also have a negative impact on your credit score. Even if you are later able to service the present loan successfully, your ability to access loans at a future date may be severely curtailed as your credit history would reflect the previous defaults. A clean credit history can also help in negotiating cheaper interest rates later.
