Jun 15, 2021 03:14 PM EDT
Personal loans are a great way to make big purchases or to meet some unexpected expenditures. The fixed payoff period and the comparatively lower interest rates than credit card makes personal loans a great and affordable alternative to a credit card. Recent reports also suggest that the popularity of personal loans is on the rise with many borrowers opting for it in the US.
However, before opting for any personal loan, a few rules should be kept in mind. These rules will help to ensure that no issues are faced in the repayment period, which will have an impact on the credit score. Read on to know more about the top 9 rules to follow when taking a personal loan.
Analyze the requirement: Before applying for a personal loan, it is advised to understand the requirement. So, the first thing is to assess and understand why a personal loan is required. Once a clear requirement is established, the next thing is to put the figures to meet the requirement. This will help to fix the required amount and not opt for a huge loan which may lead to issues, later during the repayment period.
Learn about the loan and the lenders: Everybody is aware what a personal loan is, but before opting for one, it should be looked at from all perspective. It is important to understand the aspects like the interest rates, the probable tenures, the eligibility criteria, as well as the fine lines of personal loans like the terms and conditions which will apply.
Choose the lender wisely: Just like learning more about personal loans, it is also essential to check and then choose the lender wisely. Though the idea of a personal loan remains the same, different lenders can have different requirements or conditions. Lenders may have eligibility criteria and may offer a personal loan to only those who match their profile of borrowers. Different interest rates being charged by different lenders is pretty common too. So, while choosing the lender, it is important to zero down on one who is not just offering a low interest rate but also has lesser or flexible terms and conditions.
Don't rush to avail offers and deals: Often different offers or deals are offered by different lenders. It is advised to study the offers before rushing to avail it. These offers and deals might be very attractive and may seem to be the best ones out there, but there might be some catch. So, before trying to avail these, check with the lender offering it and get more information about the terms and conditions that apply along with the offer. While some offers may be really good, some may seem to be good in the first instance but in the longer run it may not be! And, it is a sure thing that one may not want to hinder they credit score after all.
Compare the loan and lenders: Just like shopping for any product, shopping for loans also entails comparison to make the best choice. Apart from advertisements, different website and apps are now available to do a comparison of the personal loans being offered by different lenders. These can be particularly helpful while one is comparing the loans and the lenders. Once a few has been shortlisted, then further details can be checked with the lender directly.
Check the interest rate: It is essential to figure out the actual interest rate that will be charged for a personal loan. Many times, the lender offers attractive schemes like flat rates or similar schemes to lure the lenders. But, these are actually traps as flat rate does not include the reduction in the principal loan amount that occurs after the repayment paid every month by the borrower. So, it is advised to always calculate the actual interest rate that would be payable on the loan.
Check for fees and charges: Most lenders charge a origination fees to process the loan. It is basically an one time fees deducted from the loan amount to meet administrative and processing costs of the loan. The origination fees can vary across lenders. and in some cases, lenders also offer personal loans with zero fees. It is best to opt for personal loans which has zero fees. Personal loans may also come with hidden charges mostly specified in the terms and conditions document in finer prints. It is advised to check for these hidden charges before opting for a personal loan.
Check for penalties: Penalties may be imposed by the lenders for late monthly payments. However, some lenders may offer a grace period to make the monthly payment too. Another charge which might be imposed by the lender is the foreclosure penalty. Foreclosure penalty is levied when a borrower pays off the loan earlier than the tenure.
Chalk out the repayment plan: The most important rule is chalking out the repayment plan even before taking the personal loan. While some borrowers prefer to keep their monthly repayment amount low and keep paying for a longer duration, some prefer to keep it high to pay off the loan faster. Be it high or a low amount, it is important to check the affordability as the monthly expenditures and repayment of other loans and mortgages will still be there to be taken care of. So, is essential to check how affordable the personal loan is based on the income and expenditure since repayment cycle starts within a month's time.
After a detailed analysis following these rules and more research, one should opt for a personal loan.
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