Though you may be earning a decent amount in the market, sometimes you may be short of money because of financial problems such as a wedding, renovating the house, personal problems. You may be looking for funds. You may seek the finance from small institutions but the interest rates will be very high. Small finance institutions are good for small principle amount. If you are looking for the higher amount(greater than 1 lakh) then prefer personal loan rather than going with small finance institutions.
Personal loans are considered as unsecured loans because a personal loan is offered without security. As lenders are in need of money, lenders won't consider important factors such as interest rate, processing fee, foreclosure tenure, prepayment charges and etc, because lenders only focus on money and banks take the advantage of the lenders by offering the personal loan at a very high-interest rate,
Below are the top 7 things you should know before applying for the Personal Loan:
Personal loans are considered as unsecured loans because a personal loan is offered without security. As lenders are in need of money, lenders won't consider important factors such as interest rate, processing fee, foreclosure tenure, prepayment charges and etc, because lenders only focus on money and banks take the advantage of the lenders by offering the personal loan at a very high-interest rate,
Below are the top 7 things you should know before applying for the Personal Loan:
Interest rate
Usually, the interest rate is too high for the personal loan, between 13%-18% for Personal loan and there are types for Interest rate.
- Flat Interest Rate
- Reducing Interest Rate
Flat Interest Rate
Flat Rate is kind of the interest rate where the rate of interest is calculated on principle loan amount which means the amount of EMI will be same for each month. For example, if you are principle loan amount is 6 Lakhs with 14% and you need to pay an EMI of 15000 for every month until the end of the loan amount
Reducing Interest Rate
Reducing Interest Rate is another kind of the interest rate where the rate of interest is calculated on an outstanding amount which means the amount of EMI will vary because the interest rate is going to reduce every month.
Banks usually charge the customers using Reducing Interest Rate but it is worth to ask before applying for Personal Loan
Loan Amount
There are different factors that may affect the Loan Amount such as, whether you're salaried employed or self-employed, your take home salary for deduction of the tax's, your credit score and you're associated with which organization. Decide the loan amount that you want before applying for the Personal loan, as the banks always try to attract you by offering higher loan amount. Higher the Personal loan amount, higher repayment EMI.
Processing fee
Banks charges customers with the processing fee of 2%-4% to covers expenses for processing the Personal loan amount to the customers. It is worth to check before applying for the Personal loan and compare the processing fee offered by other banks before applying for the Personal loan.
Duration
When you borrow a certain amount from the banks, they give specified period of time to repay the personal loan amount in monthly installments ranging from 12 months to 60 months. Higher the duration of the personal loan, higher the amount paid to the Banks for clearing the personal loan.
Credit Score
Credit Score is a report used for determining whether the lender is capable of repaying the amount to the banks if any loan is granted to the lender. The basic rule for applying the personal loan is lender should have minimum one year of credit history, which means the lender should show one year of bank transactions. Credit information Bureau of India Limited(CIBIL) is credit information company which maintains the information of payments on loans and credit cards.
Based on the lender's credit score, banks will offer the principle. Higher the credit score, higher the personal loan amount will be released to the lenders. If the credit score is low than banks will release less personal loan amount.
Credit Score below 600 is considered as Bad Credit Score.
Credit Score in between 600 to 750 is considered as Average Credit Score.
Credit Score above 750 is considered as a good Credit Score.
It is always better to repay the amount before the due date. If you are not paying the amount credit card payment or loan EMI amount before the due date for maintaining the good credit history. To check your Credit Score, please CreditKarma website.
Foreclosure Tenure
For few banks, there is a condition that lenders cannot repay the outstanding amount within 1 year meaning that you can repay the outstanding amount after completing the 1st year and for few banks, they are not such constraints.
Prepayment charges
If you want to repay the outstanding amount, then additionally you may have to pay a certain percentage of an outstanding amount. For few banks, they won't consider any Repayment charges.
It is worth to check the figures before applying for the personal loan. Hope it is clear and let me know by commenting if you have any suggestions.
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