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Personal loans can be a great way to fund activities that you might not have enough cash for. No longer do people only avail personal loans when they find themselves in a financial pickle. You can avail a personal loan for a plethora of reasons such as when you wish to refurnish your house or when you want to have a big wedding without using up all your money.
But is this your first time taking a personal loan? If so, you need to be aware of some important rules. Here are six rules to remember before you take a personal loan.
1) Ensure timely repayment
Personal loans are known as instalment loans because of the fixed repayment schedule. At the beginning of the loan term, you will know exactly when repayments are due. Exercise discipline and make payments as per the schedule. Missing payments can hurt your credit score. Besides, your financial life does not end with one loan. As you grow older, you may need other loans. Be it a loan for a new house or an automobile. Skipping payments can affect your future loan prospects, so be sure to always avoid that.
2) Read and understand the fine print
Make sure you read each and every line of your loan document before putting your signature down. Agreed, it is easy to overlook these details. The font is small and the language is difficult. But apart from saving money, this can save you from future stress. For example, Satbir Singh from Patiala had applied for a personal loan of Rs.1. lakh, but he received only Rs. 93,500. Satbir confronted the lender. He learnt that the deduction was for an interest charge and an annual insurance premium. Satbir felt cheated. But the lender did nothing wrong. These deductions were clearly indicated in the loan document. So don’t be like Satbir and make sure that you scrutinize any loan documents that you are about to sign.
3) Avoid multiple loan applications
A lot of people file multiple loan applications at various banks and with other lenders. This is because they are not sure if their loan application will get approved by one lender. But banks become suspicious when verification agencies bring this to their notice. They reject the loan application because of the customer’s lack of credibility. If a bank rejects your application, do not apply again immediately. Wait for a few months. In the meanwhile, clear up your existing debts and improve your credit score before applying again.
4) Compare interest rates
These days, there are many options available to you if you are looking to avail a personal loan. Banks from the public sector and the private sector are constantly competing for your attention. You also have the option of the non-banking finance companies (NBFCs). With so many choices available, you find that each lender offers a different rate of interest. Take your time and compare the interest rates that you are being offered. By choosing the right loan package, you can save a lot of money. Also, study the extra charges that the lender may impose on you. Though the interest rates may be low, the cost of your loan may increase due to these other charges. This could include high processing fees, pre-payment fees, and so on.
Bottom-line:
A personal loan is a useful financial instrument. Unlike other forms of loans, you do not need collateral to avail a personal loan. But since it is a major financial decision, keep these four rules in mind to make the most of it.
