Personal loans come with a host of advantages. For starters, they’re a better option than credit cards as they attract a much lower interest rate. Further, they have a spate of applications – whether you require funds for your marriage, to travel, to tide over an emergency, purchase a used car or invest, a personal loan is easily the most fitting means to arrange for funds.
The market is intensely competitive and has evolved significantly over the last many years, with the prime contributor to growth being a progressively increasing demand. Yes, the demand for personal loans and credit has only been rising, not showing any vivid signs of slowing down.
If you are planning to take out a personal loan, here are 5 things you might certainly want to consider!
Choosing your loan tenure
Picking a tenure is, of course, an easy thing. But the idea is to pick a tenure that corresponds to your repayment interests. Say you have too many financial commitments in the near run. In a situation like this, it is advisable to choose a longer tenure, as longer tenures mean lower monthly repayments. There is, however, a disadvantage to this – longer tenures (with lower monthly repayments) mean higher interest payments. You’d be paying more towards interest on your loan, as interest payments increase as your tenure progresses.
On the other hand, if you do not have to burden financial commitments, choosing a short tenure is always the best idea, as it reduces interest paid (in comparison to choosing a longer tenure of course). Even if repayments are slightly higher, you aren’t paying too much towards interest.
Know your CIBIL score
This is an aspect most applicants tend to ignore. It is always advisable that you check your CIBIL score before applying for a loan, to get a better idea of which lender to essentially go to. Most lenders have a minimum eligibility criterion as far as the “Credit Score” parameter is concerned. Citing this, it works well to know whether you’re eligible for a loan with the lender you’ve chosen, for rejections and multiple inquiries are certain to diminish your credit score.
Choosing the ideal lender
This is perhaps the most important thing to consider while taking out a personal loan. There are different lenders in the market, each sporting their own advantages. But there are lenders whose advantages outweigh conventional benefits offered by traditional lenders such as banks.
Choosing a new-age lender like a Fintech company has numerous advantages to it. Starting from a completely digital loan application to super-quick turnaround times and easy eligibility, Fintechs have become the more preferred choices in the market today. While banks take at least 7 to 8 business days to process and disburse your loan, Fintech lenders take just about 2 working days for the same task. So depending on how quick you want your personal loan, you can be quite sure about which lender to approach.
Pre-closing your personal loan
A proven advantage in picking a longer tenure, although it’d attract higher interest payments, is that you can pre-close your loan before the end of the tenure, while also reducing your monthly repayment amounts (we already discussed that longer tenures attract lower monthly repayments).
Lenders don’t usually charge high pre-closure charges. Ideally, pre-closure charges can range from 2% to 5% of the outstanding principal amount.
Know the various charges involved
Every form of credit, be it personal loans or credit cards, have their own bunch of fees and charges. Personal loans, for instance, have late payment charges, EMI bounce charges, pre-closure charges, processing fees, etc. Knowing the various charges levied on your loan will help you know full well the extent of your repayments, among other aspects.
These five things will help you make a more informed decision before taking a personal loan, while also assisting you in planning your repayments better.
The column is written by Aditya Kumar, Founder and CEO Qbera.com