Here are 6 tips to get your first personal loan

Personal loans are available for any purpose. They can be used to cover unexpected medical expenses, home renovations, or other financial needs. This means they can’t be secured against any asset. Borrowers are not required to provide collateral, such as gold or real estate assets when applying for a personal loan from a financial institution (NBFC) or bank.

If you are applying online for a personal loan, you must understand the basics of the loans.

These are six important tips to remember before applying for an instant personal loan online. These tips will ensure that you don’t make costly mistakes like selecting the wrong lender or a poor tenor and borrowing more than you need.

1. Keep a healthy credit rating.

Lenders use credit scores to assess borrowers’ ability and financial capacity to repay a loan. A simple act like paying your credit card bills in time will help you build a high credit score. To maintain positive credit history, you should not exceed your credit limit of more than 30%. You will get a personal loan easier if you have a good credit rating.

2. Calculate your monthly instalments (EMIs), carefully

EMI payments should not drain your savings or become a burden on your finances. It is important to calculate the EMI amount and ensure that you have the capital to pay it within the agreed period. Usually, the EMIs should not exceed 10% of your monthly income. If the EMIs are greater than 10% of your monthly income, you run the risk of losing your savings. This will harm your daily expenses.

3. Select a loan at the lowest interest rate

Personal loans typically have higher interest rates, ranging from 11% to 20 per cent. Even a small drop in interest rates could make a huge difference in your overall loan costs. It would help if you remembered that low monthly payments over long repayment terms are often associated with higher interest rates.

This is important because even though small monthly payments may seem feasible, they will ultimately lead to higher loan payments over the life of the loan. Borrowers should not spend more than 35%-43% on debt as a rule of thumb. This includes car loans and personal loans.

4. Evaluate the need for a loan

Although it’s not a bad idea to take out a loan, it can be a financial burden that can last long. It is crucial to evaluate the motives for the loan and make sure that it is necessary. It might not be the best decision if the loan is used to fulfil a whimsical wish to purchase a luxury product.

It is also risky to take a loan if you are looking to invest in other financial products/schemes to make profits. Market risks are also a concern for reinvestment and borrowing schemes. There is no guarantee of high returns. It would be best to be cautious about taking out loans for high-risk ventures as you will have to repay the EMIs.

Bad investments can lead to huge financial liabilities. Before you apply for a loan, ask for advice from the right people.

5. Always get a loan from a reputable financial institution.

While digital lenders can verify and process loan requests faster, disbursement is often quicker. Bullet repayment allows users to select the repayment plan that suits their working capital cycle.

Digital lending companies also offer other features, such as obtaining a shorter-term loan or the delayed repayment option. Customers can request extensions of the repayment period by requesting 30 to 90 days without paying any late fees penalty.

Multiple options are advantageous as they allow borrowers to compare interest rates, processing times and other parameters before deciding on their loan.

6. You might want to ensure your loan.

This pandemic taught us one important lesson: life is unpredictable. It is vital to ensure your loan so that your family is protected in the event of your death. The loan insurance payments are the same as any other premium payments. They can be paid monthly or in a lump sum.

Because you don’t have to pay any loan repayments in the event of an unforeseen event, loan insurance helps your credit score remain high.

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