A personal loan has the power to rescue a borrower from urgent financial requirements. It is a handy, unsecured loan during the time of needs. A personal loan can be availed based on income and credit, unlike other loans. It does not require any collateral to back up as security. A personal loan has more benefits as compared to secure or the loans require collateral. It can be used to meet the unplanned requirement of finance like unexpected medical expenses or to purchase home appliances or to purchase apparel of your favorite brand. Personal loans are easy and convenient to get money when a borrower is badly in need of it.
Now days almost every lender offering an online loan approval process due to which the loan amount is directly get transferred in the borrower’s bank account with quick processing. Due to the tremendous competition in the financial market, sometimes borrowers get confused between the personal loan offers.
So here are the 5 things the borrowers should look for while taking a personal loan:
Look beyond Rate of interest
A borrower should also look the APR, as it is one of the most important things to consider. The rate of interest alone do not show the true cost of the product. Personal loans are unsecured due to which they attract high-interest rates. A borrower can apply either for the fixed or variable rate of interest. It usually depends on the type of loan a borrower chooses. Lenders usually offer an interest rate based on the credit score, loan amount, and income of the borrower. Generally, the personal loan comes at a fixed rate of interest although it completely depends on the lender.
A fixed interest rate means that the rate will remain the same for the complete repayment tenure. This very much facilitates the borrower from the headache of budgeting because the borrowers know what they are getting into right as there will be no surprises. Whereas variable-interest-rate on personal loans usually starts with a lower rate, keep fluctuating as per the market conditions. So when rates are trends low, it comes in the borrower’s favor but as it increases for some time it troubles a lot to the borrower.
Many lenders offer personal loans with some extra charges. So it becomes very important for the borrower to ensure that there is no hidden cost on a personal loan. The processing fees and other charges vary from lender to lender. A borrower should always check the charges apart from the interest rates, before choosing the lender. Otherwise, he/she would spend more than they intended to.
Look out for all the available lenders
Many borrowers remain unknown with the fact that banks are not the only option of personal loans. Other lenders like NBFCs, Credit unions often offer personal loans at a lower rate of interest and fees. There are times when banks reject the borrower’s loan application then it seems like all the doors are closed, when it doesn’t. A borrower can apply for a personal loan with the NBFCs and others. In tough times, a personal loan can save a borrower from the financial disaster. It can also save a borrower if he/ she is currently trapped in a high-interest debt cycle. But it is important to remember that this type of loan is unsecured, so interest rates are generally higher than loans that are secured by an asset like a home or a car. There are competitive rates out there, though, especially for borrowers with great credit score and stable income.
Loan Repayment tenure
Every lender offers a different set of repayment tenure. A borrower is the one who chooses his/her repayment period. It impacts the interest rate of the personal loan. Longer repayment tenure lowers the monthly loan payments, but a borrower has to pay more in interest if he/she chooses shorter repayment tenure. The shorter period increases the borrower’s ability to get approved for other loans or credit cards. In contrast to it, longer repayment periods might limit options of obtaining credit in the future. Many personal loan lenders charge penalties on early payment of the debt, so it’s always good to avail the personal loan for the short period he/she can afford.
It is always easy to avail the personal loan from the bank a borrower has an existing relationship. Here the loan approval and disbursement of the loan amount are much easier than others. Sometimes the banks offer discounts to their existing customers. If a borrower is banking with their banks, then there are chances that the borrower may get some added benefits in the form of a reduced rate of interest or reduction in certain charges.
Personal loans are very helpful especially when a borrower requires financial support but have no time to wait. The above-mentioned points can vary from lender to lender. Talk, discuss and negotiate with the lender before availing the loan and get all the assurance and offers given by the lender in writing. Last but not the list a borrower should never sign the blank application form and/or any other document.