Getting a personal loan can be a complicated financial decision. You really need to undertake a lot of due diligence before you can decide on the various aspects of getting a loan. If you are planning to get money for an emergency and have decided to take a personal loan, you need to answer a few questions so that you get the best possible deal.
- How much loan do you actually need? First and foremost, you need to check how much money you actually need. This will depend upon what is the exact cause for needing the money. Do you need money for vacation travel, home repair, or for medical emergencies? Many times you may be lured into borrowing more money than what you actually need and this becomes a problem in the long term. Be very careful and only borrow what you need, not what you want.
- How much money can you pay per month as EMI? The EMI for a loan is going to be a very important factor in how much money you should borrow. Lenders account for your income as well as your liabilities when they decide how much they can give you as a loan. However, you as the borrower should take a very deep and careful look at how much you spend every month and how much financial runway you have to pay as the loan instalment.
- Have you compared the interest rates from different lenders? If you are taking a loan, the most important number you should be most careful about is the rate of interest. The higher your loan rate of interest, the more you will end up paying as the cost of capital. Higher interest rates will lead to higher monthly payments as well as overall higher payments in paying off the loan. Conventional lenders tend to offer higher interest rates because of their higher business cost whereas modern fin-tech-based instant loan apps offer much better interest rates.
- For how long do you want the loan to run? The duration of the loan is another key factor that you should keep in mind in order to choose the best personal loan. You will have to strike a balance between how much money you want to pay every month as well as how long you want to pay the EMIs. See the concept here is that the longer you run the loan, the lesser will be your EMI amount. If you want to keep the loan short, you have to pay more per month. The best loan app in India will always allow you to choose how long you want to pay EMIs.
- What are your other financial liabilities? It is very important to check what is your inflow and outflow of money. Look at your home budget and see how much money is being used for what purpose. See if there is any monthly financial commitment that you have, you will have to account for that. Are you saving every month for medical insurance? Are you paying off home rent, or are you paying off monthly car payments? These things will be counted in your loan eligibility.
- Are you ready to pay application or processing fees? If yes, how much? Most lending companies will charge a processing fee when you take a loan from them. You have to be careful about them. Instant loan apps will generally charge lower fees than conventional lenders. The fees are not collected beforehand and are deducted from your sanctioned amount before loan disbursal. Read all clauses related to fees diligently before finalizing your loan application.
- Which is the preferred lender for you? Choosing your preferred lender can be a very important decision in your borrowing matrix. While every loan app may claim to be the best loan app in India, you will need to be very careful about deciding on your preferred lender. Make sure that you choose only those instant loan apps which have the backing of a well-established brand name,
- What are your emergency plans in case of loss of income? This is an often-ignored factor in getting a personal loan. In case of any unfortunate loss of income, you have to be ready with a plan for payment of EMIs as well as taking care of your own monthly expenses. The rule of thumb is to always have at least two months’ income in liquid cash in your bank account. This will act as a backstop for the time when you work on income resumption.
- What are the pre-payment charges involved? Finally, you need to check what are the fees and charges that you must pay in case you are looking to clear off your loan early. The lesser the prepayment charge, the better it will be for you.
Always keep in mind that when you are taking a personal loan, you are taking on a serious financial commitment. It is not a decision that one should make lightly and you should be very careful at every step. Only after doing proper due diligence, should you decide which lender to choose.