There goes a saying about making big decisions – “Sleep over them!”. If you still stand firm on your stance, then go ahead. We guess you will agree with us when we say that taking a personal loan is not a small step and requires thorough thinking, a good plan of action and a lot of research. You would have to pay a decent processing fee and also a good amount of interest along with the money you’re going to borrow, which in itself is a huge responsibility.
No, our purpose is not to scare you – don’t worry! However, it is necessary for you to analyse your current situation and decide if you REALLY need a loan. How, you ask? We’re right here to help you!
Do you REALLY need a loan?
All you need to do is ask these five questions to yourself! They would give you a fair idea about how important it is for you to take a loan right now or if you could do without it. Cutting to the chase, here are the 5 things you should consider:
1. Is this purchase urgent?
If whatever you’re taking a personal loan for can wait until you save up some cash and then get it home, we would highly recommend that. Honestly, taking a loan would be an additional stress knocking at your door every month. If you can take a small portion of that stress, convert it into motivation to save every month – you might as well reach your goal sooner and interest-free!
2. Will you be able to pay-off the loan?
Being honest with yourself is the key here. No one knows your finances better than you and what amount you can afford to pay every month for the next few years. Be open to the possibility of losing your job for a few months, facing a medical emergency or any other fiscal emergencies. You should know that any late payments would directly affect your credit score which would cause an ugly situation, so make sure you’ve thought it through.
3. Is there anything else that you can buy which would be less expensive?
We all know how much you want to take a loan for that vacation to Switzerland or how buying that car has been your dream. BUT, there is absolutely no harm in exploring alternatives that would be a little easy on the pocket and would serve (almost) the same purpose! You might as well go for a vacation to a little less expensive place or buy a car that is a few lakhs lesser on the cost side. This way it would be a win win for both you and your finances!
4. How fast can you repay the loan?
There are chances that you want a loan for a small time until you get a huge bonus, your next month’s salary or a large commission to pay it off. It is advisable to pay off the loan as soon as you can, as the longer the tenure of the repayment, the more is the interest. However, you need to research and make sure what kind of prepayment penalties your bank charges, because almost all banks have strict rules and penalties for prepayment. However, we would advise you to not bank upon any future financial gains because there’s no such day as tomorrow – right?
5. Have you answered the above questions honestly?
If you are still here – Congratulations! We never said taking a loan is a bad option, it just requires a lot of thought and commitment and we wanted you to be sure. The bottom line is that you’re taking someone else’s money and you are tied to repay it on time. We know you are responsible and know what you’re getting yourself into. Now, the question is WHAT NEXT?
Now that you have decided that you want a loan, we’ll walk you through the next steps that are needed to be followed in order to achieve the same.
Hold on, before we begin, we want to ask you if you know what a personal loan is? If you know what it is, then GREAT (pats on the back, yay!) but if you are not sure then here’s a small definition for you:
Personal Loan: A personal loan is a loan given to an individual for his or her own use. It could be for expenses related to house renovation, traveling or vacation, medical emergency, or just the repayment of smaller debts here and there.
The next step here would be knowing if you’re eligible to take a loan (Ha, and you thought taking a loan was easy?) The permissible age for the above is 23 years to 58 years. You should be employed (As if you didn’t already know!) You should have a minimum salary of Rs. 15,000 per month if you’re a salaried individual and for the self employed, the minimum lies at Rs. 5 lakhs/ p.a.
Okay, now that you’re eligible, lets deep dive into the mechanics, shall we?
Features of the Loan that you should consider
You might need cash urgently and not have the time to fill in extensive documentation, or you might want to take the process slow. Depending on how quickly you need the loan approval, you might need to filter out banks that work according to your needs. A lot also depends on the time period for which you are seeking out a loan. Here are the four major aspects that you should consider before taking a personal loan:
1. Processing fees
Through the loan, you’re taking services from the bank and hence, the banks charge processing fees for the same. It could range anywhere from 1% to 6%. depending on the bank you choose to take the loan from and how quick the processing is.
2. Interest Rates
It’s no secret that banks levy heavy interest on loans, but with thorough research, you can save a little money. The interest rate varies from as low as 11% to as high as 40%. Majorly, it depends on the bank, the purpose of taking the loan and the tenure you can pay back in.
Nobody knows your finances better than you, right? Therefore, this is an area where you need to sit down, analyse your situation and decide the amount you can pay back every month and the number of years you would need to pay back. Just FYI, the longer the tenure, the higher the interest rate. Most banks have fixed tenure ranges for fixed amounts, so you need to consider that too.
It is important to check what are the pre-payment terms of the bank or the NBFC you are taking a loan from. Most banks charge some amount of penalty if you pay the whole loan (or even a part of it) before the stipulated time. Save yourself the future effort (and also, time) and confirm these small details before taking a loan.
Different banks have different offerings and in the end, it all boils down to what you want. Taking a loan, if backed by thorough research and genuine commitment, can be one of the best aids during financial crunch. Be it for a wedding, an emergency or any personal reason, just know the amount of debt you can afford to put yourself in. Go ahead guys, take that loan in style and pay it off with responsibility!