Many people choose to take a personal loan because they can use it for any purpose they think fit. Another reason is that these are unsecured loans that make it easy to apply. Read on to know more about personal loans online.
Understanding Types of Personal Loans
- Secured: These are personal loans that are backed by some kind of collateral like a car or house. If you default on the loan, the lender may seize the collateral.
- Unsecured: Unsecured cash loans are not backed by any collateral, which makes it riskier for the lenders. Due to this reason, the lenders may charge you a higher annual interest rate.
- Fixed-Rate: Your interest rate and monthly payment, also known as installments, stay the same for the entire duration of the loan.
- Variable: The interest rate on these loans are tied to a benchmark rate that is set by the banks. Based on how this benchmark rate fluctuates, the interest loan, monthly payments, and total interest costs can rise or fall.
6 Important Personal Loan Tips
Once you understand how to get a personal loan, you need to know how to secure a personal loan successfully.
Evaluate the Purpose
You can use the personal loan for a number of reasons, such as:
- Medical emergency
- Home renovation
It is important to evaluate why exactly you need a personal loan. Only if the loan is absolutely necessary and serves an important purpose, go ahead.
It would be a bad idea to take instant cash loans to fund a holiday if you have unpaid credit card bills. You will end up in more debt that way. When you have a clear idea of the purpose, you can evaluate if the interest and tenure of repayment are worth your time or not.
Do Research to Choose the Right Lender
You can apply for a personal loan from a bank, online lender or credit unions. Everyone has different terms and personal loan interest rates. Shop around a little bit rather than opting for the first lender you come across.
A lot of fintech companies are offering online, hassle-free loans. The loan application is also quite simple.
Research the market thoroughly to understand which lender offers you the best deal.
Ensure Your Credit Score is Accurate
Your credit score is the biggest determining factor of how much interest rate you will be subjected to. A high credit score means lower interest rates and vice versa.
For example, if your credit score is low, you may have to pay 25% as interest rate while just 10% for a higher credit score for the same loan amount.
This is why you must ensure your credit score is accurate. Take steps to keep your credit score high to get better interest rates. However, be prepared for higher interest rates if you have a low score.
Check Your Eligibility
Before you apply for an instant personal loan, you have to check with the lender whether you are eligible for the loan or not. This holds especially true in terms of income and employment.
Income is one of the main criteria that lenders check when they are approving a personal loan. It helps them evaluate if you are financially capable of repaying the loan or not. You can either be a salaried employee or self-employed. Your age is another deciding factor.
It is important that you check the eligibility criteria before applying for the loan. Failing to do so may result in rejection, which in turn will affect your credit score.
Compare the Interest Rates
Every financial institution offers different interest rates. It is absolutely essential that you compare all the different schemes before you apply for a personal loan.
If you take a large loan for a long tenure, it may reduce the amount of monthly payment. However, the interest rate that you will pay over this period will be much larger as compared to a loan you borrow for a shorter period.
Compare and calculate the interest rates carefully before you apply.
Calculate the Monthly EMIs
Once you take a loan, you will have to pay monthly EMIs. Calculate the amount you have to pay as a monthly EMI and what interest rates you will be charged. This will give you a better idea of how to manage your monthly budget.
Use a personal loan EMI calculator to calculate how much you have to pay as monthly EMIs.
It is important to be aware of any additional fees and foreclosure charges on the loan. Take only the amount you need as any extra loan amount may become a burden on you. Choose the right type of personal loan based on your needs.