Applying for a loan can be nerve-racking, especially when it comes to technical terms like interest rates, payment terms, prepayment penalties, term, amount, payment schedule, etc. Although these terms are essential, you should know each of them before applying for a loan. People tend to focus more on the advanced technical terms related to a loan and forget the basic knowledge necessary to obtain a loan.
There is a loan in the market for every need. For example, you are facing a medical emergency and may need a personal loan to finance treatment. Or maybe you are thinking of buying a home and looking for a home loan. Or perhaps you need the funds for your child’s college education or finance your child’s wedding. Maybe you are looking for a car loan to finance the car of your dreams.
Tips that you should keep in mind when applying for loan
Choose a loan with the lowest interest rate
Since personal loans are unsecured, very high-interest rates are charged, ranging from 11% to 20%. Always look for the lowest interest rate when applying for a personal loan. You can do this quickly online. A slight difference in interest rates would make a significant difference in the cost of loans. Remember that banks and credit institutions establish your interest rate based on various factors such as the reliability of your income, your solvency, etc. If you get a loan from a bank you do business with; they may offer you lower interest rates.
Consider Other fees
While interest rates are essential, you should also consider a bank’s other fees. One of the main changes is the processing fees, which range from 1% to 3% of the loan, sometimes with a maximum and minimum limit. Banks sometimes offer discounted deals on their processing fees. Another charge to consider is the early repayment penalty, which is also calculated as a percentage of the unpaid amount. If you have the extra money, prepaying a loan can save you interest, but a higher prepayment rate could be disastrous.
Check your repayment capacity
When obtaining a personal loan, it is essential to make sure to repay it. To find out what your EMI would be, use an EMI calculator. You need to enter details like loan amount, interest rate, and term, and the calculator will display the EMI. To do this, you must carefully analyze your cash flow. The total portion of your income you pay as an EMI must not exceed 40% of your total net income. The decision on the term of the loan also plays an important role. A shorter tenure means a higher EMI and vice versa, but a longer tenure means more interest payable. Take all of these factors into account before deciding on a personal loan.
Fixed loan amount
Banks offer you a loan amount that may be more than you need. However, you must adequately assess your needs to determine the loan amount to apply for. When a personal loan is necessary, like a wedding or vacation, first get a budget, see how much you can finance out of pocket, and then look for a loan to finance the balance.
Avoid falling into the trap of fancy offers
You are likely to be bombarded with personal loan offers. They promised high loan amounts, low-interest rates, easy payments, etc. However, beware of offers that are too good to be true. Just because someone offers you a “pre-approved loan offer” does not mean that you are falling into the trap. Read the fine print before making a decision.
Don’t settle for the first loan offer you are offered. You can check with some lenders before committing to a particular lender. In addition to the interest rate, it is also good to check if the other attached conditions offered are favorable for you. Trading can lead to better offers such as reduced interest rate, penalty-free pre-trade, etc., which will make your monthly EMI exit easier. While credit, or any form of loan, plays an essential role in achieving your life goals or coping with emergencies, you should be aware that responsibility for creditworthiness is just as important as responsibility for creditworthiness. Contact for more details.