5 Precautions To Consider Before Taking Out A Personal Loan
Personal loans are effective financial solutions to raise some extra funds on an urgent basis. A personal loan can be used for any purpose including renovating your house, paying for a wedding, purchasing business equipment, setting up a new office, clubbing outstanding dues against one loan, capitalizing on an investment opportunity or simply taking a long-awaited vacation and so on.
Availing personal loan gives people an opportunity to fulfil their financial obligations or achieving their dreams, making them a hugely popular financial solution in the current scenario.
Some of its key advantages include:
- Easy application process requiring basic KYC documentations
- Quick disbursal of funds
- Flexible repayment tenure and attractive rate of interest.
- Options to make prepayments and close the loan before expiry with 4 percent closure charges
While the benefits of this scheme are many, the decision to opt for it is a big one. One must acquire proper knowledge about various aspects of a loan and then make an informed decision. Some precautions that can be considered while opting for a personal loan include:
Need to Take a Loan
You must apply for a personal loan only after assessing your requirement for the same. It is advisable to opt out of taking a loan if you can somehow manage to meet your needs through more direct methods of payment. Since the loan is to be repaid through monthly instalments, one must carefully analyse the resources to determine whether it is feasible to regularly pay those instalments to be cautious and avoid any unwanted financial obligations. It is a smart move to determine the amount of money you require, if any, and plan the repayment process judiciously.
Calculate the Total Outflow
One must be aware of how much money to spend over and above the loan amount that one seeks. Lower EMIs over a longer tenure tend to be more expensive in the long run as one continues to pay interest on the amount for a greater period of time. To ensure a maximum optimisation of the benefits of this scheme, it is advisable to opt for larger EMIs and pay off the loan at the earliest.
Study Processing Fees and Other Charges
It is essential that you assess the total cost of taking a personal loan by factoring in various charges that the scheme may attract, such as processing fee, documentation charges, pre-payment charges, penalties in case of default, and any other chargeable contingencies.
Understand the Terms and Conditions
Before applying, one ought to go through the fine print of the loan document to know the exact terms and conditions of the scheme. It is essential that one understands all the pros and cons of the loan and clarify all doubts before signing the document.
Attached Frills on Offer
Do not be fooled by superfluous offers. When frills are offered along with the loan, one should thoroughly understand the terms governing them and seek clarity regarding all aspects of the offer.
Source: Money Control