5 Things You Must Consider Before Getting a Personal Loan

Updated on: 14 Dec 2021 // 23 min read // Personal Loans
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When it comes to borrowing money to meet one or more of your needs, a Personal Loan is often the first choice of many. To begin with, it is one of the only loans, which allow the borrower to use the disbursed amount as per their own will. In addition, Personal Loans enjoy quick processing and swift disbursal, sometimes, even in as little as a day’s time. This makes Personal Loans the go-to alternative in cases of emergencies. To top it all, Personal Loans often offer a hefty loan amount, ranging anywhere from 50,000 to 50 Lakhs, that too without the need of offering any asset as collateral, which makes them favourite amongst many.

However, there is one downside to Personal Loans, and that is, the high-interest rates, often ranging from 11% to 22%, and in some cases even up to 26%, making them astoundingly expensive. Add to it the fact that the borrowed amount must be paid back in as little as 60 instalments, and the borrower often ends up with an exceedingly high equated monthly instalment (EMI), which sometimes can be difficult to manage.

Hence, if you wish to Get a Personal Loan, you should be a little cautious and completely understand its nuances. To help you do just that, we have consolidated a list of 5 aspects that need your due diligence, before you apply for a Personal Loan.

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1. Eligibility

In order for you to enjoy a Personal Loan, it is essential that you meet the eligibility criteria as dictated by your chosen lender or bank. More often than not, you must meet most, if not all, of the following criteria:

  • High credit score, preferably 750 or above
  • Stable employment, with at least 2 years of continued employment in the same field of work
  • A monthly income of 25,000 or above

In addition to the above, you must be in the age range of 21 to 60 years to avail this loan.

While 20,000 is the minimum monthly revenue that you should be bringing in, you must remember, the higher your income, the higher is the loan amount that you will be eligible for. If you wish to get an estimate of the amount that you can borrow, you can do so by using Personal loan EMI Calculator offered by MyMoneyMantra.

2. Your Ability to Repay the Loan

As mentioned above, Personal Loans come with high interest rates, and consequentially high EMIs. Hence, it is important to gauge if you can pay the EMI, while comfortably managing your day-to-day living expenses, and fulfilling other financial obligations. Ideally, your Personal loan EMI should not exceed 30-40% of your total household income. That being said, when you apply for Personal Loan, your bank will run a repayment capacity profiling to analyse whether or not will you be able to service the loan in a timely and efficient manner.

3. Prepayment Charges

If you are someone who would like to pay off their loans at the earliest possible, in a bid to reduce the interest outgo, you should check if your bank levies a prepayment penalty. If so, you should ask the bank for the details regarding the same. This penalty is usually charged as a small percent, usually 0.5 to 2.5% of the outstanding loan amount. A high penalty can discourage you from closing off your loan earlier, and it is therefore recommended for you to find a loan that entails no or a fairly low penalty.

Also Read : Impact of Aadhar Card on Personal Loan

4. Interest Rates

As mentioned earlier, Personal Loan interest rates can be rather high especially if you have a poor credit score. Hence, before you formally apply for a loan, you must inquire with the bank, and take an estimate of the interest rate that you will be charged on loan. If the rate is on the higher end, say 15% or above, it would be in your best interest to rethink your decision. If situation permits, you should build a better credit score over a span of 3-6 months, and then apply for a loan to ensure low-interest rates.

Then again, if you need the funds urgently you can shop around to see which bank offers the lowest rate and avail your loan from the same.

5. Amount Per EMI

The factor is dictated by your actual loan amount, as well as the rate of interest that you pay on the loan. The higher your loan amount and your interest rate, the higher will be the EMI. Yet another determinant of the EMI is the loan tenure, where the EMI is inversely correlated to the tenure. Hence the lower the tenure, the higher is the EMI.

As a borrower, you should aim at getting an EMI which is low enough to be manageable for you and high enough so that you don’t end up paying a hefty amount towards the interest.

Again, you can use MyMoneyMantra’s Personal Loan EMI Calculator to understand how you can arrive at the desired EMI, while still being able to fulfil all your financial obligations efficiently.

We hope that you are now crystal clear about some of the most significant aspects pertaining to a Personal Loan. Always remember, the better you educate yourself about something as crucial and expensive as a loan, the more efficiently will you be able to manage your finances, and increase your credit score in the process.

Also Read: Is it Possible to Take a Personal Loan in Another State?

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.

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