People require money. Every single time. occasionally for positive reasons. And sometimes for not-so-nice ones (like situations -medical reasons/emergencies). Therefore, a common concern among people is whether they will have enough money to efficiently pay for large-ticket items.
You are well-prepared for such unforeseen and inevitable expenditures if you already have an emergency fund in place. However, if you don’t have a safety net of funds, you may always rely on your friends and family to help out when you need it. But what if they are unable to?
Even if it might not be the ideal choice, you have to decide if you have no other choices. And you look for the finest offer for yourself.
You can obtain personal loans immediately. Indeed, within minutes using modern, technologically advanced lenders. Furthermore, although personal loans are more expensive than other types of loans (such as house loans, gold loans, etc.), they are still far more advantageous and reasonably priced than credit cards.
In any case, assistance is available for those who are unsure about the precise definition of a personal loan. The definition of a personal loan has been outlined by the Reserve Bank of India. Please read about it on the RBI website if you’re interested.
You can use a personal loan to assist you get through a brief financial difficulty and get the loan money immediately. No need to offer any security to the Bank. This implies that the loan will not be secured. However, in an emergency, it is preferable to get the loan money as soon as possible.
The reasons for availing of personal loans are financial or medical emergencies and that too if your emergency fund is not in place or short. Though you may borrow for other purposes as well. However, it’s best to avoid taking out loans for unnecessary purposes and for luxuries like vacations, shopping, or the purchase of a gadget, but I don’t want to claim the moral high ground in this situation. Financial fundamentals are not too complicated.
Having said that, let’s talk about a few key decisions that you should make while preparing to take out a personal loan:
- Primary Research: To find out what kind of interest rates are being provided for personal loans, do some primary research on banks’ websites. Loans will be available from various lenders at varying rates. Never apply for a loan when you get one. You will undoubtedly find lower-rate personal loans if you do some comparison. By the way, there are other factors besides interest rates. Additionally, you must confirm that the lender is giving you the necessary loan amount. Let’s say a lender offers you Rs 2 lakh at 14% even if you require Rs 3 lakh. You are also receiving Rs 3 lakh at 15% from another lender. Since the choice with the higher interest rate provides you with the necessary money, you will undoubtedly choose it.
- Interest Rates – This is an obvious choice. The lower, the better. However, make sure you comprehend the kind of interest the lender is charging. Although flat loan rates could seem appealing, you might have to pay more in interest over time. It is preferable to get a loan where the EMI rate is determined using the declining balance technique.
- CIBIL Score (Credit Score) – It is beneficial for you as a borrower if your credit score is higher. Lower interest rates and larger loan amounts will be available to you. When determining lending rates, most lenders take credit scores into account. Personal loans with lower interest rates are given to applicants who have strong credit, and vice versa. Therefore, even if you don’t currently need a loan, be careful to keep your credit score at or above 700. By the way, because many young applicants have no credit history at all, many new lenders these days do not only rely on credit ratings. They even examine their social credit scoring systems before lending to first-time customers.
- Processing Fee – A processing fee is a one-time charge made by lenders when you apply for the loan. This can make your loan more expensive. Banks or lenders usually charge 0.50% to 2% processing fees. To be sure that your loan is inexpensive, compare the processing costs that various lenders impose.
Application for Personal Loans:
Once you decide on the bank or a lender, follow the below steps. You may not need to visit the bank to apply for a loan.
- Visit the official website or mobile app
- You must build your application to use the digital portal (or app).
- It should contain all the personal, financial, and employment information.
- All of the employment, financial, and personal details have to be included.
- Enclose the filled-out form together with the necessary paperwork.
Even though the documentation has decreased somewhat over the years, it is still a good idea to have the following on hand when applying for a personal loan: your PAN card, Aadhaar card, ITRs (income tax returns) that you have filed within the last two to three years, passport-sized photos, etc.
Ensure you complete your research and know your EMI commitments before applying for a personal loan. For this, you must calculate your monthly loan repayment EMIs using basic online EMI calculators. Using these calculators, you can discover how much you can borrow and how much EMI you would have to pay by changing the duration and interest rate to meet your monthly income.
Here are a few guidelines for you to get a broad idea about:
Suppose you want to take a personal loan of Rs 5.00 lakh for 5 years. Now, this is how your EMIs and total interest paid will change based on the interest rates:
| Interest Rate | EMI | Total Interest payment for 5 years |
| 10% | ₹ 10,623.52 | ₹ 1,37,411.34 |
| 11% | ₹ 10,871.21 | ₹ 6,52,272.69 |
| 12% | ₹ 11,122.22 | ₹ 6,67,323.43 |
| 13% | ₹ 11,376.54 | ₹ 6,82,581.19 |
| 14% | ₹ 11,634.13 | ₹ 6,98,035.53 |
| 15% | ₹ 11,894.97 | ₹ 7,13,684.90 |
| 16% | ₹ 12,159.03 | ₹ 7,29,527.71 |
| 17% | ₹ 12,426.29 | ₹ 7,45,562.27 |
| 18% | ₹ 12,696.71 | ₹ 7,61,786.82 |
| 19% | ₹ 12,970.28 | ₹ 7,78,199.53 |
| 20% | ₹ 13,246.94 | ₹ 7,94,798.51 |
As you can see, the overall interest payment on a longer-term loan will be higher, but the monthly payment will be cheaper. If you compare EMI @ 10% and 20%, the increase is just less than Rs. 3,000/-. However, the overall interest payment is huge.
Thus, use caution while selecting the length of your loan.
Please note that if you have a credit card, don’t believe using it to pay off a personal loan is preferable. In fact, it makes more sense to simply take out a personal loan to pay off credit card debt if you have a big balance that you cannot pay.
So if you want to take advantage of a personal loan, take advantage of it smartly.
Also Read: Why Mutual Funds Are a Great Investment in India?