8 Important Factors You Should Know Before Taking A Personal Loan
A personal loan is the easiest option for a common man to handle sudden cash requirements. Whether to clear out a sudden cash crunch or grab a lucrative investment opportunity, getting a personal loan seems to be the fastest and smoothest way to generate some funds. Or is it?
Just because you may qualify for a personal loan doesn’t mean it’s always the best option for you. There are several benefits of a personal loan when taken wisely, but if you are just taking it in a hurry, you should take a step back and rethink. There are several factors about personal loans that you need to understand well in advance, or else you will be in for an unpleasant surprise on every turn.
Confused? Let’s make things simpler. Here are the seven most important things you should know before taking a personal loan.
Fact #1. Interest Rates Are Not The Same Everywhere
Personal loan interest rates can have some massive differences depending on the financing option you choose. Banks, private financers, and local lenders can all offer personal loans, and the rates will be different with them. Local lenders and private financers can approve a larger loan amount, but the interest rates will also be up to 3 or 4 times higher than the banks.
Therefore, you must compare several options before going for one. A rule of thumb would be to always go for the lowest interest rate even if the approved amount is a little less.
Fact #2. Different Interest Types
There are different types of personal loan interest rates, such as fixed interest rates and reducing or variable interest rates. Depending on the type of interest rate charged on the personal loan, the amount you pay as interest may differ.
The fixed-rate is a flat interest rate that stays the same throughout the tenure, while the variable rate is where the interest rates keep changing according to the changes made in the repo rate by the Reserve Bank of India.
Depending on the market conditions, you can save some money just by choosing the right interest system. So, make sure that you understand the interest rates well before you accept your loan.
Fact #3. Impact Of Credit Score
Did you know that you can get a loan for lower interest rates if you have a good credit score? Yes, your credit score has a significant impact on the loan amount and interest rates. So, make sure that you have a good credit score before you apply for the loan. It can greatly smoothen the process for you.
Fact #4. Associated Fees
There can be some fees associated with the loan approval process. The fees may differ from lender to lender. Therefore, you must also compare the associated fees of different lenders to ensure that you are paying only reasonable charges.
Fact #5. There Is Always A Better Offer
Banks can give you a better personal loan option if you request. Therefore, do not hesitate to ask for extra benefits. If you are not satisfied with the current offer, ask them proactively and they will assist you if they have a better option available for you.
Fact #6. There Is a Penalty For Paying Early
If you are taking a personal loan for the first time, you will be surprised to know about this rule. Yes, you can in fact get penalized if you choose to pay off the loan early. Many banks have early pay-off penalties to compensate their losses in interest rates when you decide to pay early. Make sure that you check about early pay-off penalties associated with your loan and make your choice wisely.
Fact #7. Terms & Conditions Can Be Complex
Some lenders may have complex loan systems that can create unnecessary complications in the future. Beware of such lending systems. Always make sure that you understand all the terms and conditions well before choosing a product.
Fact #8. Utilize Alternatives
No matter how convenient and attractive the loan is, you need to pay an interest amount above the borrowed amount. So, think wisely, and check all your alternatives before you decide to take a loan. If there is a good alternative available, it is always better to utilize it.
These are the 7 most important things you should know and understand before you take a personal loan online. When it comes to finances, you must never make decisions in a hurry. Instead, analyze every option calmly and always make your decisions wisely.