By virtue of being an unsecured loan, unsecured loans have a very high rate of interest attached to it. So one should consider taking a personal bank loan only if:
You do not have an asset/security towards which you can get a loan. For e. g. if you have an FD you can pledge, a secure loan might make more sense.
You have some presence on your cash flows and are sure you will be able to repay the EMIs (Equated Monthly Installments) in time. Else you might be bound to enter into a debt capture.
There is an emergency and you need funds immediately. A personal loan can be used because the processing time is much lesser on account of minimal documentation.
Opt for unsecured loans only to meet your essential needs which cannot wait. It should be your own last resort. Taking it intended for satisfying leisure needs can prove to be pricey i.
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e. for gambling, purchasing a new car (a car loan is really a better bet with a lower interest) etc .
Before you choose your personal loan:
Calculate the cheapest loan offer: These loans come with very high interest rates ranging from 14% to 25%. Compare interest rates and get the complete picture by learning the annualized interest rates for each offer. Then figure out the total amount of repayment you should shell out with all the offers before opting for the loan of your choice.
Processing fee et al: You need to bear in mind the processing fee and other fees that will be levied when you apply for your personal loan.
Prepayment penalty check: Ask upfront if there would be any penalty payments for prepayment of the personal loan at any point in time. More often than not loan consumers tend to pay up their loans earlier than planned to be rid of financial debt. Hence, it’s important to know if your personal loan offer allows part prepayments. In case that is the case, then you should be aware from what time frame in the loan period you can start prepaying and understand the cost incur due to such prepayments simply or full.
EMI and tenure: Evaluate all loan offers. The very first condition for loan offer selection is the total money outflow that the loan will cost. The second factor may be the EMI. A loan offer with a cheaper EMI and a longer tenure might seem attractive, as it could be easy on the purse strings, however not all such loans prove to be cost effective in the long run. Therefore, first calculate the total loan cost and then try to opt for a higher EMI, which you can comfortably manage to enable a shorter loan tenure.
Keeping track of your credit track record: Especially in the case of unsecured loans, your credit history, which is recorded by CIBIL (Credit Bureau India Limited) plays a vital role in your loan application being recognized. A good repayment track record ensures an immediate loan approval but brownie points in the form of more attractive interest rates.
Who is entitled to a personal loan?
The eligibility requirements and their specific details could differ from banks to bank based on their perception of the risks associated with such loans. However , nearly all banking institutions divide the potential borrowers into three categories:
Self employed people
Self employed professionals
Other factors which are taken into account are, age, residence, work encounter, repayment capacity, past obligations make of work.
What documents are needed for personal loans?
Personal loans require the very least number of documents, making it the quickest to be approved. Typically, financial institutions would require proof of identity, residence, revenue and also 3 to 6 months of your bank statements. Some banks also require guarantors and the same set of their documents.
Alternatives to a personal bank loan
As indicated in the beginning of the article if you have access to investments that you can promise, like shares, fixed deposits, precious metal, insurance policies etc . you can obtain a loan against them. The interest rates are usually lower compared to personal loan interest rates.