These days, availing a Personal Loan has become as simple as a cakewalk, thanks to an exceedingly high number of lenders, along with the digitisation of the loan processing and approval process. More often than not, a Personal Loan application gets approved within a day, and the required amount is disbursed in as little as 1-5 days. What’s more is that the process requires minimal documentation, especially if you are applying for a credit product such as SBI Personal Loan, which is designed explicitly to offer maximum possible convenience to the customers.
That being said, we do not recommend you to jump on the credit wagon without putting in a sincere thought. As a matter of fact, we have consolidated a list of 5 questions that you must ask yourself, before availing a personal loan.
In a vast majority of cases, some expenses may seem unavoidable, even when they are not. For instance, the purchase of the latest smartphone can wait, and so can your dream vacation to Paris. You must understand that though readily available, even a Personal Loan is essentially a credit which would need to be repaid along with interest.
Hence, it is better to wait a while, save sufficient money for what you wish to spend on, and only then bear the expense. Since you are already motivated to make the purchase, you will be extremely driven to save. And what better than buying what you want out of your pocket, rather than taking a debt and entering into a long-term financial commitment.
On paper, you may seem eligible for a loan, but it is up to you to ask yourself, whether you will be able to use a large chunk of your income every month to pay the equated monthly instalment (EMI).
As a rule of thumb, your EMI should not exceed 40% of your monthly income. However, if your income is marginally low, say Rs. 35,000 a month, you may not be able to pay off Rs. 14,000 without severely impacting your quality of life and that of your family members.
When you take out a loan, you must understand the significance the tenure. A long tenure will definitely seem beneficial, as it will considerably reduce your EMI, and help you live comfortably while still paying off the loan. However, the increased length of the repayment period also indicates that you will have to shell out more money towards the interest.
Hence, when you plan on taking a loan, it is highly recommended that you undertake meticulous planning to pay off your loan at the earliest possible. If you are sceptic about opting for a higher EMI, you can choose for an EMI that you are comfortable with, and at the end of the year, prepay a significant part of the loan. However, this will only prove to be in your favour, if your bank doesn’t levy a high prepayment penalty.
Unfortunately, Personal Loans do not qualify for tax benefits. However, if you are using the loan amount for the renovation of your home, and can furnish proof of the same, you can avail the associated tax benefits.
Then again, if your loan amount is being used towards the operating expenses of your business, you can get a full rebate on the annual pay-out towards the loan. Hence, when you take the credit, have a specific goal in mind, and make sure you have the relevant documents to claim a tax deduction.
Usually, the penalty may vary from 0.25% to 2% of the outstanding loan amount. As discussed above prepayment can prove to be a great way of shortening your loan tenure. Hence it is extremely crucial to find a lender which levies a comparatively low prepayment penalty.
Even if your chosen lender initially proposes a higher penalty, you can negotiate the terms of the loan, and ask for a lower prepayment fee. For all you know, a simple negotiating effort can go a long way in helping you save hundreds and thousands of rupees!
We hope that when the time comes for you to borrow some money to meet your financial needs, you will ask yourself these five questions and only then go ahead to make the final call. And if your decision is in favour of opting for a formal credit, you can always rely on products like SBI Personal Loan and other such credit alternatives from the leading banks in India.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.