Known to be an unsecured loan, a personal loan helps one during a financial emergency. One does not require to place any security or collateral to avail the loan. Moreover the loan can be flexibly used to serve one’s purpose, be it paying medical bills, travelling, clearing educational fees of children or even getting them married.
Personal loan in India is quite sought after because it can be easily availed and is quite flexible. One may opt for a personal loan, especially if they need the money for a short period of time. But a personal loan in India as well as other countries, generally comes with a high rate of interest, thus certain precautions have to be taken while opting for this loan. Any type of default in the repayment of a personal loan can lead to major outgo and in many cases heavy debt as well.
Thus, certain precautions should be kept in mind while opting for a personal loan in order to ensure timely repayment of the amount-
1. Do not opt for multiple loans
Sometimes, a desperate need to acquire funds because of a financial crisis may compel borrowers to apply for multiple loans from various banks. This action, will greatly reduce chances of loan approval and sanction. When an application for a loan is made, the banks first go through the entire credit history of the borrower. If you have availed more than one loan, it may adversely affect the credit score. A person who does not have a very high credit score is generally charged a higher rate of interest, as compared to a person who has a good score.
2. Only borrow the amount that can be repaid
One can avail an instant personal loan from a number of banks today. Many borrowers take a hasty decision and avail the personal loan without considering if they have the potential to repay the loan in time. To ensure timely payment of the EMI, see that it does not surpass about 35% to 40% of the monthly income.
3. Loan tenure should be chosen after considerable thought
In order to reduce the burden of personal loan repayment, choose a short loan term. More the tenure of the loan, higher will be the total cost of repaying the loan. This is primarily because a higher tenure means a higher interest amount to be paid on the whole. Also keep in mind that you choose a loan tenure according to your capacity to repay the loan.
Apart from the above mentioned points, also make sure that EMI’s are paid on time and defaults should not occur. Moreover, the documents should be thoroughly read and considered before availing the loan so that no hidden costs are missed.