Essential Tips to Consider Before Going for a Personal Loan

Personal loans and pre-approved loans are quite commonplace these days. Such is the demand and the popularity of this option that not a single day passes without a push notification for your e-mail inbox about a particular service provider and its benefits on offer. 

However, a word of warning; personal loans have their own set of pros and cons. So, do not make the amateur mistake of thinking it is the best possible option for you given the cash-strapped circumstances. Ad campaigns are made to attract customers, so before you hit the link in the description, make sure you are aware of what the option has to offer. 

So, here are all the basic tips from the financial experts at Credit Ninja that you must keep in mind before taking it. 

The interest rate

The interest rates are the primary considerations before taking out any line of credit. If you think that the low-interest-rate loans are the ones you should go for, then make sure you read the fine print before signing on the dotted line. If truth be told, the lowest interest rate doesn’t always guarantee a small payment. There are other options like the flat interest rates and the reducing balance interest rates that you should consider. 

Assessing the total cost

After you have successfully negotiated the problem of the interest rates, keep in mind that there are associated charges as well. The following section lists all the costs for a personal loan. 

Processing Fee

The processing fee is typically around 1-2% of the net loan amount. For the best deal, look for an institution or lender that offers you the lowest possible processing fee. 

Prepayment Fee

There are instances when an individual is forced to take it to help with the cash in hand. However, when the situation turns for the better, prepayment of its amount is an option. But, keep in mind that there are prepayment penalties that are issued by the lending service. So, look for its service with the lowest prepayment penalty. 

Late Payment Fee

There are late payment penalties to deal with as well if you fall behind schedule for making the payment on the dues. This is why it is vital that you take into consideration the late payment fees as well. 

Borrow according to need and not eligibility

According to our financial experts, making money is easy, but the trick lies in the managing of it. Most of us think about the eligibility criteria while taking out it. But, our experts would like to advise you that its application should depend on the actual need and not the eligibility. You might be eligible for a higher amount than what you require. But if you are borrowing more than you need, you need to understand that you will have to pay back the extra as well. So, exercise self-censorship to make the best benefit. 

You need to shop around for the best deal

Going with the very first option on the market for the personal loan deal is a mistake. You need to shop around and look for the best deal according to your requirement and necessities. Call customer care at various lending institutions to get the rates and the details its option.   

You are contractually obligated to pay the EMIs

Now that you have done the shopping for the best possible loan option and you have made the call. Before your request gets approved, make sure that you are confident about your repayment ability. It is all about doing an honest assessment. If you are unable to service the EMI payments for it, then you will need to pay the penalties. So, it is essential to understand your limits while going for this.

Checking your credit score

These days you can make inquiries into your credit score and even get a free online credit report all from the comfort of your home. Your credit score determines whether you are eligible for it and how much you need to pay as the interest. Before accepting your application, any lending institution will automatically check your credit score. So keep tabs on your credit score to understand your credit accounts better. 

Add-on offers are unnecessary

Most of the banks and lending services will offer additional products like accidental insurance plans and health benefits along with the personal loan. Most of these do not have any upfront payment. But, the insurance premium gets added to the EMI for each month. The amount might seem to be inconsequential but add it up for the entire period of the loan repayment, and you will see an exponential increase in the net spending. So, the best idea in this scenario is to say a firm NO! Circumstances can force you to take out a personal loan but regarding the decision for the add-ons is on you. So, make a wise choice to save hundreds of dollars. 

Take your friends and family into confidence

Before you take out a personal loan, talk out your plans with your closest friends, family, and relatives. Your support system can lend you the cash in crunch situations, hopefully without charging an eye-watering interest. One significant benefit of asking your friends and family members for a loan amount is that you can make the repayment at your ease, should both parties mutually agree to the setting. 

Personal loans are the last resort

Unless it is imperative to take it, it is vital that you avoid this option. Any short-term cash crisis can be averted by managing to earn more and reduce spending power. The personal loan should always be a last resort when you have exhausted every other option at your disposal. Keep in mind that in this debt is counted among the most expensive debts in the financial sector, with interest rates ranging from 12-30% per annum. 

In conclusion, we would like to state that go for a personal loan in case of emergencies. But, do read the offer document carefully before applying. Assess the total cost, compare the interest rates from more than one service provider, and make an informed choice.