Personal Loan: 7 Golden Rules to Follow When Taking Loan

Personal Loan

Unsecured options such as personal loan are an increasingly popular mode of borrowing, especially among working individuals. It is because they offer a substantial amount against zero end-use restrictions to help borrowers address almost all sorts of financial requirements. 

However, several individuals are increasingly lapping up small loans online due to their easy availability and compact loan offer. These are personal loans with smaller ticket sizes to help individuals meet lower fund requirements without burdensome repayment. 

While this financial product might be the best option for many, here are a few points to consider before applying.

Seven rules to abide by when opting for a small personal loan

  • Borrow the exact amount you need 

Personal loans offer adequate funds to suffice for most financial requirements. However, individuals should avoid over-borrowing just because the amount is available. The foremost thing potential borrowers need to do is examine their exact loan requirements. After that, they should opt for the precise small personal loan amount. 

It is because borrowing more than your repayment capacity can overburden your finances, resulting in potential default. Most financial experts advise keeping your total monthly debt lower than 50% of your monthly earnings. Therefore, consider your existing liabilities, income, and current requirement before picking the exact amount you need.

  • Check your eligibility for personal loan

Financial institutions heavily rely on applicant’s eligibility, especially when sanctioning unsecured financial products such as personal loans. One of the most important aspects that decide an individual’s eligibility for small loans online is his/her CIBIL score. It is an indication of applicants’ financial standing, repayment history, and overall credibility. Therefore, ensuring a high CIBIL score is a solution if you wonder how can you increase your chances of getting a personal loan. 

At the same time, check if your monthly income aligns with the lender’s criteria. A high income, along with a healthy credit score, assures financial institutions of substantial repayment capacity. Displaying such high credibility can also help borrowers avail of loans at lower interest rates.

  • Compare multiple lenders

Interest rates and several other lending policies vary across financial institutions. Therefore, it is always a good idea to check the terms and conditions of several lenders. Nowadays, almost all lenders have an online presence. Therefore, potential individuals can easily visit their websites and compare their personal loan lending policies. Thereafter, they can choose the one most suitable for their requirements.

  • Choose the personal loan interest rate wisely

As already mentioned, personal loan interest rates vary across lending platforms. Most lenders also provide options for floating and fixed interest rates. The final repayment amount depends heavily on this aspect.

For instance, an individual opting for a Rs.2 lakh loan at 12% for 2 years will pay Rs.25,951 interest. Conversely, when a 14% interest rate is applied on the same amount for the same tenor, the total interest becomes Rs.30,459.

  • Check for additional costs involved

Several NBFCs charge additional fees for processing, documentation, etc. These can add to the total borrowing cost significantly. Besides, there can be pre-payment and late repayment charges as well. Therefore, individuals must know everything about the fees and charges applicable to a personal loan before applying for effective financial management.

  • Opt for a shorter repayment tenor

A long loan tenor may facilitate more affordable EMIs. However, this will result in a higher interest outgo in the long run. A shorter repayment tenor will help reduce the total payable interest remarkably.

Suppose an individual borrows Rs.3 lakh worth of small loans online for 3 years at 12%. Here, the total interest payable will be Rs.58,720. Now, if the tenor becomes 2 years, the interest outgo reduces to Rs.38,928.

  • Prioritise repayment

The best way to ensure effective financial management is never to skip repayments. Late EMI payment will result in additional expenses in the form of late penalties, increasing the borrowing cost. 

There can be several instances where small loans online do not suffice for your requirement. Depending on your need, you can determine when it is a good idea to avail of a personal loan.

In case you are still in the planning phase, consider browsing for pre-approved offers extended by premium NBFCs, including Bajaj Finserv. These offers expedite the application process by cutting down on paperwork. Thus, check your pre-approved loan offer beforehand to enjoy a speedy approval. 

Once you are familiar with all the above points, you can check how to get a personal loan to proceed further.

Must Read: Learn How to Repay the Personal Loan Faster