If you have some personal needs to cover within 1lac to 5lac, you can go for a Personal Loan. There is a defined term for which these loans are granted. You have to pay off the loan as soon as the term is over. It is also important to have all the information before applying for a personal loan. As it not only improves the chances of getting a loan but also helps you to get the lower interest on personal loan. If you want to take out a personal loan, then here are the Important Things to Know Before Taking a Personal Loan make sure you consider these things that are given below.
Maintain Good Credit Score or Good Credit History
A CIBIL Score is a consumer’s credit score. CIBIL score is a three digit summary of your credit history. The score is derived using the credit history found in the CIBIL Report (also known as CIR i.e Credit Information Report). A CIR is an individual’s credit payment history across all the loan types and credit institutions over a period of time. A CIR does not contain details of your savings, investments or fixed deposits.
The CIBIL score ranges from 300-900 and a score above 750 is considered to be a good score. Credit score any thing below 750 is considered to be bad debt management and this may result in loan application being rejected or a higher interest rate.
Consider the origination fees
While taking loan, there are numerous costs that have been charged by the banks like processing fee, prepayment fee and late payment fee.
The processing charges are between 1-3% of the loan amount. Whereas there are few banks which charge a flat processing fee and these changes and addition to the total cost of the loan. So it’s better to have a lower processing fee.
Prepayment on loan means foreclosure of loan, that means you are closing your loan well in advance. So the bank also charges for prepayment which again almost 1-3% depend on the banks.
Late Payment Fee
Credit institutions levy penalty (late payment fees) in case you are late on EMI payment. If you are struggling with cash flows, do consider this penalty too. This varies between the banks.
So while applying for a personal loan please make a note of all the bank charges as this would give a clear estimate of your expenditure and this helps you to manage your finances better and also helps you to know whether the loan is affordable or not.
Compare the interest rates in the market
Compare the interest rates by various lenders to get the lowest interest rate. You can easily compare the same on different portals list Paisabazaar & Bankbazaar. This will help you get the personal loan at the lowest interest rate.
Consider your limits
This is important. Before you apply for a loan, don’t forget to get a better idea of your financial situation. In other words, you should only go for an amount that you can easily pay off. For this, you can use a Personal Loan Calculator to get the better idea on your monthly EMI well in advance and plan your repayment accordingly.
Avoid Add-On Offers
While selling personal loans, banks also pitch for additional products such as accidental insurance plans. The insurance premium will get added to your EMI.
In this way you not only pay interest on Personal loan but you also pay interest on Insurance premium too. If you start falling for such add-on offers, there is no excuse. You are the only one to blame. Accidental insurance is just one example. There can be many such add-on offers. Learn to say NO to such offers.
Also note there are some banks who don’t pitch for such offers but they add it to your account without you knowing. So it’s advisable to read the document properly before signing and also after getting the loan as you have 30 days to conceal any insurance which is been added on your account unknowing to you.
Avoid Personal Loans
It’s advisable to take a Personal loan and close your credit card debt as the credit card interest is too high. But it’s advisable that you don’t take any personal loan until it’s very urgent. As the personal loan interest varies from 15%-30% per annum. Also it’s advisable to not take any Personal loan more than 3-5lacs. If you are looking to borrow more than 5lacs then better take Loan against property as the interest rate would cost you somewhere between 7-9% per annum.