Precautions to Follow Before Applying for Loan

There are times when you may be in need of some excess funds. In such occasions, it can prove to be in your benefit to opt for a Personal Loan and use the loan amount to meet various needs such as:

  • Home renovation
  • Medical expenses
  • Wedding-related expenses
  • Sponsoring higher education of children
  • Business set up
  • Business expansion
  • Debt consolidation

One of the leading benefits of Getting a Personal Loan is the fact that you can use the amount as per your convenience, without having to convey the details of your expenditure to the lender, unlike the case with car loans or Home Loans. Some of the other coveted advantages of Personal Loans include:

  • Convenient application process with minimal documentation.
  • Swift disbursal of the loan amount, sometimes in as little as 2-3 days.
  • Attractive interest rates, based on your credit history.
  • Flexible repayment alternatives.
  • Various facilities such as foreclosure and prepayment.

Considering the many benefits that Personal Loans entail, it is apparent that it would be your first call when you are in need of excess fund to meet your financial obligations. However, before you start searching the market for some of the best Personal Loan offers, we insist that you take the following precautions:

  1. Take a Loan Only if Inevitable

Regardless of the advantages offered by a Personal Loan, it cannot be denied that this loan attracts a significant interest rate. Moreover, given the tenure of 1 to 5 years, a mortgage is a huge financial commitment, which you should get into, only if it is absolutely necessary. Hence, if you can take an education loan for sponsoring your child’s college, go for it rather than opting for a Personal Loan, and benefit from the lower rate of interest. Also, if you can arrange the necessary funds from other sources such as friends and family, opt for these instead.

  1. Check Your Credit Rating Beforehand

Credit reports are known to be plagued with numerous mistakes, and this occurrence is usually far more than you can imagine. Hence, even if you are maintaining an excellent level of discipline, your reports may prove otherwise. This makes it extremely important for you to order a free copy of your credit report, and review your score at least once a year. This way, if there is any discrepancy, you can take up the matter with the concerned authorities. On the other hand, if you are at fault regarding one or more of your payments, you can rectify the mistake and ensure a better score. Make sure you do this exercise before you apply for a Personal Loan.

  1. Shop Around

As is the case with almost all significant financial investments, it is recommended that you take a Personal Loan from a lender that offers you the best possible deal. Right from low-interest rates to a competitive processing fee, from no or little penalty towards late payment to additional facilities like convenient foreclosure or prepayment, your chosen lender should be willing to provide it all. If not, look for other banks which can offer you a better deal.

  1. Beware of the Risks

While Personal Loans are not secured, to begin with, you may opt for a secured loan in lieu of a lower interest rate. However, you must remember that a failure to repay the installments may put the lender in a strong position to take charge of the collateral. Hence, offer collateral only if you are more than sure of being able to repay the loan well within time, without defaulting.

  1. Consider Prepayment Penalty

While it may seem unlikely, but there may be a point in the future when you wish to or simply need to pay off our loan before the end of your tenure. In case such a situation arises, you must know all about the prepayment facility offered by your bank, including the penalty for the same. Ideally, this penalty should not exceed 2-3% of the outstanding loan amount at the time of closing the credit. Hence, make sure that you ask your banker about the same, and re-confirm the charges before signing your loan agreement!

We hope that you are now aware of all the precautions that you need to take before and after applying for personal loans. If you take these precautions, you can rest assured of enjoying a hassle-free borrowing experience!

Also, Read 5 Ways your Company Type Impacts Your Personal Loan Eligibility

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