Need extra funds for a dream vacation, home renovation or a wedding? A personal loan is often an easy solution to finance such goals and desires. But keep in mind that while personal loans appear as a convenient solution, they come with a repayment obligation spanning anywhere between one and six years. If you are looking to opt for a personal loan, here are the top five crucial factors you must consider.
Examine your needs and repayment ability
Before applying for personal loan, introspect on why you need these funds and whether the reason warrants taking on debt. Also, realistically assess your income streams and current financial obligations to determine surplus income that can comfortably cover loan EMIs every month. Be conservative in your estimates and account for any fluctuations in income. Have a cushion for emergencies. Borrow only what you can repay without strain. Avoid financing frivolous expenses just because funds are easily available.
Research interest rates and fees
Do thorough research to understand if the preferred lender is offering a favourable interest rate to you based on your repayment potential and credit profile. Also, check the processing charges and pre-closure penalties offered by the lender. Negotiate for a better deal if you find the lender charging higher charges or rates. To compute the loan figures based on your repayment potential, you may take the help of an online personal loan calculator.
Check eligibility criteria
Lenders have specific eligibility criteria regarding the applicant’s age, employment status, income levels, credit history etc. Salaried individuals usually between 21 and 60 years are preferred. Besides, meeting the age criteria, income and KYC documents are mandatory for placing an application for a personal loan. Additional documents might be required on a case-to-case basis.
Understand additional benefits
A few lenders may provide additional benefits on personal loans such as processing fee waivers, part-prepayment discounts, flexible repayment options, etc. Alpine Credit, for example, provides flexible personal loans in Canada. Existing customers may get extra loyalty rewards like discounted rates. Some loans are bundled with complimentary insurance covers too. Check with the preferred lender for such benefits to reduce overall loan costs and customise the loan as per your needs.
Read the fine print
Read all terms and conditions diligently before signing the loan agreement – loan amount ceilings, disbursal timelines, repayment structure, preclosure clauses, penalty for defaults, fee exemptions, if any, and other important clauses. Ensure the terms align with your needs and there are no unpleasant surprises later on. Ask the lender to clarify any ambiguous or conflicting clauses upfront.
Taking a personal loan is a huge financial decision. Do your homework, assess needs prudently, read the fine print, and benchmark options. This enables you to make an informed choice that suits your requirements at optimal terms. Avoid impulsive borrowing and ensure prudent use of funds keeping repayment capacity in mind.