10 Tips While Taking a Personal Loan

• Amount borrowed

• Interest rate

• Type of interest (fixed or a variable)

• Repayment term

• The down payment or deposit needed

• Related fees or costs (administration fees, prepayment fees, etc.)

• The insurance that the lender would require

• Do I really need a loan?

• Can I postpone my expenses?

• Can I manage without a personal loan?

• Is it for a needless expense that I could really avoid?

• Is it possible to secure the money by other means like borrowing from a relative, taking up a part time job, sale of an asset?

• Secured Personal Loans

• Unsecured Personal Loans

There are a number of banks those who are providing personal loans. Personal loans come with very high interest rates ranging from 13% to 24%. To find a cheaper one you have to shop around. Compare interest rates and get the complete picture by understanding the annualized interest rates for each offer. Annualized interest might differ from bank to bank. Once you understand the interest rate, part figure out the total amount of repayment you need to disburse with all the offers before opting for the loan of your choice.

2. Understand the processing fee, Prepayment penalty and other charges

Before borrowing a personal loan you need to keep in mind the processing fee and other fees and charges that will be levied when you apply for it. Ask frankly if there any penalty payments for prepayment of the loan at any point in time. More often borrowers tend to pay up their loans earlier than planned to be free of debt. But if there is any penalty on prepayment, it will cost you more. Therefore, it is very important to know if your personal loan offer allows part prepayments.

3. Be clear about EMI and Tenure

EMI and Tenure will differ from bank to bank. So before choosing one evaluates all loan offers. The first condition for loan offer selection is the total money outflow that the loan will cost. The second factor is the EMI (Equated Monthly Installment). A loan offer with a lower EMI and a longer tenure may seem attractive, however not all such loans prove to be cost effective in the long run. Therefore, first calculate the total loan cost and then try to opt for a higher EMI, which you can comfortably manage to enable shorter loan tenure. Always keep in mind, loans with lesser EMI and longer tenure might look attractive but it makes you to pay more.

4. Avoid unsecured loans if possible

Unsecured loans look attractive as it doesn’t need any collateral or security. But it charges more interest on the borrowings. So try to avoid using unsecured personal loans if you can put up some security for your borrowings. This will help you in getting a lower interest rate. A home equity loan, allowing you to borrow against the equity built up in your own home or an investment property, is the best option of all, and could get you money at up to 5 percent less than a personal loan.

5. Consider smaller lenders also

When shopping around for a personal loan, consider smaller banks like cooperative banks, credit unions and other smaller financial institutions which might be more approachable, and offer lower interest too.

6. Don't make numerous applications

Whenever you are applying for a loan, the bank will check your credit history with CIBIL (Credit Information Bureau India Limited). So it is better not to fill out applications at several financial institutions and have all of them checking into your credit history. This can make you lower your credit score.

7. Be honest in filling the applications

Before borrowing a personal loan make sure that your need is unavoidable. Be honest about why you want the loan. Your bank may be able to offer you a loan option that better suits your circumstances. There are an increasing assortment of personal credit these days, such as; car loans, commercial loans, leases, home equity loans, etc.

See Also: How To Apply For An Instant Personal Loan Online?

8. Have the right information when applying

Try to provide all the necessary information while applying for a personal loan. This will help you to make further proceeding easy. What you will be required to supply in any application will depend on whether the loan is for personal or business use.

Personal lease applications will require:

Business lease financing requires more detailed information and may include your:

9. Know what interest rate applies

Before borrowing a loan, be very clear about the interest rate charged on it. Always be sure you know what interest rate applies. Lenders often ‘sell’ you their finance packages by quoting the monthly repayments only. This may cover a high interest rate.

10. Identify whether you qualify for a 'relationship discount'?

Relationship discounts are available from banks and credit unions for those borrowers who have a long term relation with the bank and a range of banking business with that institution. Home and personal loan interest rate discounts, term deposit bonuses, savings account fee waivers and credit card annual fee waivers are commonly offered. Good and long term relationship with loan provider will help you in getting the interest rate deduced.