Personal loan is basically an unsecured loan that you get depending on your credit score and your earning capacity. It is quite different from collateral loan i.e. loan against a personal security of land or any other property. Taking a personal loan involves a lot of prior thought and planning. Many people lack this prior planning or do not have enough knowledge before taking personal loan and hence have to face the trouble of timely repaying the personal loan. A personal loan has its own pros and cons but before you take a personal loan, there are 7 basic things you should know before taking a personal loan. They include:
- The interest rate: A personal loan’s interest rate will generally be higher than that of secured loans such as mortgage etc. this happens because in the case of secured loans, you give some kind of security to the financial institution like property papers or jewellery etc against which the loan is sanctioned. So, in case of default in such cases, financial institution can always sell your property to replenish their amount. but there is no such security required for a personal loan. Therefore, risk is higher in personal loans for the financial institutions and hence higher interest rates.
- Credit Score: Not just how much money you earn, your credit score also matters to a large extent for you to be eligible to receive the personal loan from credible sources. As there would be no collateral, the lender would have to depend on your creditworthiness to decide on taking the risk of giving the loan to you. The interest rates might also vary as per your credit score. For example f your credit score is very high you can expect your interest rate to be comparatively lower than another person whose credit score is lower than you.
- Not a long-term remedy: Whatever reason you might have to take the personal loan, you must understand that it is not a long-term solution to your financial situation. In case of a mortgage loan/ home loan you can pay it back in over a decade or so but the tenure for personal loan is comparatively lower than that, maybe a span of two to three years or sometimes even lesser. This is in a way good as it will get you in the habit of borrowing the money only for the period you need it and then you can pay it back. However, at the same time you must also remember that if you are taking out a very high amount as loan, the EMI amount would also be very high.
- Banks are just one of the options: These days there are many options other than just banks to lend you money. There are several market place lenders available these days who offer quick and easy online personal loan at attractive interest rates. Even people with poor credit scores or with no CIBIL score can also get loan from P2P Lending Platforms. P2P Loans are just like personal loan where individual lenders are giving money to you. P2P Loans are fast and hassle-free, and you can get loan from the comfort of your home.
- Take a note of the processing fee and other extra charges: At times there could be a higher amount of extra fee that is charged on you against personal loan you are taking. You need to have an idea about them before you decide to take on a personal loan or borrow money online from any source whatsoever. These fees and extra charges might turn out to be an extra burden on loan repayment and you need to be aware of what you are risking here. You should also consider about the pre-payment penalty which many banks charge in case you want to foreclose your loan. New age P2P Lending platforms like i2ifunding.com do not have any pre-payment penalty.
- Decide on what you are taking the loan for: It is very important to have a complete clarity as to why you are taking the loan. It is advisable to take a loan for a certain thing whereas it is also not advisable to borrow money for buying petty items such as fancy mobile phones etc. You would not want to be neck deep in debt for buying things which are not necessary for your survival.
- Persons loans should not be obtained to fund certain expenses: One of the biggest advantages of a personal loan is that you don’t have to give explanation for your purchase to the financial institutions. Personal loans can also add a financial burden if you don’t use it wisely. Few things to be kept in mind while taking a personal loan.
- Personal loan should not to be taken for leisure and extravagant show-offs.
- Personal Loans should not be taken for the gambling purposes
- Persons loans should be used for giving loan to others or trading in stock market.
You need to be aware of the things that you are going to risk and what you would gain if you are taking a unsecured personal loan and then accordingly settle down for the loan amount, the source of taking online personal loan, the interest rate and tenure for which you would have to pay back the loan.