What are The 4 Things You Should Remember Before You Avail a Personal Loan?

Friday, September 22, 2017, 6:00 AM | Leave Comment

Personal loans is an easy way out of an existing monetary problem. As the times are changing, personal loans are seen as the perfect way out of it.

In the current market condition, personal loans are the most preferred types of loans. There are two types of personal loans: secured loan and unsecured loans.

If you opt for a secured personal loan, you will have to keep some type of collateral with the bank. A collateral can be anything like your house, your fixed deposits or even your jewelry.

Financial institutions or lenders prefer secured loans over unsecured loans because if you ever default on your repayment, the financial institutions or lenders can then confiscate your collated item and use them to cover their loss.

In an unsecured personal loan, you do not need to keep a collateral with the financial institutions or lenders but this type of loan is not approved instantly.

personal loan

Here are 4 things that you need to keep in mind while applying for a personal loan:

  1. Your Eligibility Criteria and Documentation

    The loan approval process is not easy. The first thing that a bank looks into when you apply for a loan is if you are eligible. Your eligibility is highly dependent on your credit score. Financial institutions or lenders check credit score to check your creditworthiness and to see if you will be able to repay your loan.

    If you have a high credit score your personal loan will be approved in no time but if you have a low credit score then you will have to go through a longer and more tedious process to get your loan approved.

    Other things that financial institutions or lenders see when you apply for a loan is if you hold a steady job or if you have enough assets to pay off your debt in case there is a loss of a job or if you have any liabilities, etc.

  2. Your Equated Monthly Installments

    Once your loan application is approved and the loan amount is disbursed you need to start paying your Equated Monthly Installments (EMIs) to the bank. The amount of EMI that you need to pay is decided by the bank on the basis of your monthly income and expenses. Usually, EMI cover up to 40% of your monthly income.

    Taking a loan is a drastic step and you need to be completely sure that you want to take a loan. EMIs are a very big part of taking a personal loan and if you have opted for a secured personal loan and you default on repaying your loan the bank will cease your collated item. It is necessary that you think carefully before applying for a loan.

  3. Credit History

    Credit history is something that highly affects your personal loan approval. If you have a good credit history and have not defaulted in your repayment of debt in the past then it will be easy for you to get an approval on your loan.

    If you have defaulted on the repayment of your loan in the past then it will negatively affect your credit score and the financial institutions or lenders might not be too eager to approve your personal loan application.

  4. Other Costs

    There are other costs that are associated with a personal loan like processing fees, late payment charges, etc. which is to be paid when you opt for a personal loan. The processing fees are taken upfront by the banks. It is necessary that you factor all these in when you opt for a personal loan.

Applying for a loan may seem like an easy task but you need to make the right decisions before applying for a personal loan.

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