Taking a personal loan is one of the best methods to face an unexpected financial crisis. It is also an authentic way of borrowing money for fulfilling your dreams or sudden requirements. On the one hand, a personal loan can become the best decision you have ever taken to overcome your financial situation.
While on the other hand, repaying it can also become a big headache if you borrowed it just from any bank without having the proper information. So, if you really wish to save yourself from the personal loan debt trap of high-interest rates then, you must know some important tips about it.
Here is the list of top five golden tips that you should keep in mind before applying for a personal loan:
- Choose Personal Loan in Emergencies Only:
A personal loan is one of the fastest issuing loans with the least paperwork. Apart from it, you can get it without even mortgaging any of your precious belongings. People usually choose a personal loan over other loans for these two major reasons. But, you should also know that these pros are also accompanied by some other things. For instance, Personal loan has interest rates ranging from 10.75% to 13.20% which are much higher as compared to other secured loans.
In addition to this, you also have to pay the loan processing fee which is 2% of the total loan amount. So, all of this together becomes quite expensive. After the credit card loans, personal loans are the second most expensive loans that are available in the market. So, you should take it only when you are facing an unavoidable financial emergency.
- Credit Score Plays Central Role in availing the Personal Loan:
A lender has to ensure your creditworthiness especially before providing loans like a personal loan that are not backed up by collateral security. So, your credit score is very important in determining the fate of your personal loan application and interest rates. This score is calculated on the basis of your repayment history of credit cards or other loans that you have taken earlier.
It ranges from 300-900, and a score above 750 is considered good for availing better personal loan offers. Nowadays, you can know your credit score before banks with online tools. It will assist you in applying accordingly. If you have a very low credit score then, there are chances of your loan application rejection. So, you should maintain your credit score prior to applying for the personal loan by paying your dues with punctuality.
- Compare Interest Rates in the Market:
You should compare the interest rates offered by various lenders just like you compare the rates before buying any new accessory. Every bank has a different set of rules as well as interest rates for every type of loan. Comparing all the interest rates can help you in finding the banks that are providing the lowest interest rates.
Worry not; you don’t have to go to every bank to know their interest rates. You can take help of the internet as there are many websites that contain all this information. To check the relevance of any information, you can contact on the helpline number of that particular bank. Remember that, borrowing a big amount for a longer tenure may reduce the amount of EMIs but, it will definitely increase the total interest that you are going to pay. So, focus on these things like loan tenure and amount to avail lowest possible interest rates.
- Avoid Sending Too Many Loan Applications:
Searching for the right loan is not a bad thing but, sending personal loan applications to every bank that has an attractive offer is not a wise move. People usually do that in the hope that if one or two of their applications will get rejected even then, they will have many chances of getting the personal loan. But, this thing will affect your credit score and ultimately your chances of getting a personal loan.
Every time a bank receives your personal loan application, it performs a search to elicit your credit report. Your credit score gets affected every time a bank tries to do this. It also shows other banks that you have applied for so many loans due to which they can consider you a cheat or conman. So, send the loan application only to a limited number of banks.
- Limit Your Loan Amount:
It is very crucial to remember that a personal loan is not a long-term solution. Yes, it will provide you with the amount you need to fulfil your immediate needs but, you have to repay it. Many people fall into debt traps because they borrow more than what they can repay. You should not repeat this common mistake. Always perform an objective analysis of your needs and your future cash flow before deciding your personal loan amount.
If you are not sure about your future cash flow then, go for a short term personal loan with a limited amount so that you can pay it back somehow. The best part about short term loan is that you can take another personal loan with different interest rates. Or a top-up loan on the existing one if you will need more and have the ability to pay back in future.
So, be vigilant and careful while selecting the best personal loan offer for you. Only choose an authentic bank for availing a personal loan to avoid any debt trap. Don’t be too hasty while selecting the loan offer as there is no back way once you borrow the loan from some source.
