9 Rules to Follow Before Applying for a Personal Loan

Technology has changed the face of loan application process. Advertisements online and on various media offers easy loans at the quickest disbursal. But one has to be wary of and not fall into this trap.

Here are the 9 Excellent Rules to follow when taking a Personal Loan

1. Limit your borrowing to your requirements –

Though technology has made lending and borrowing much easier, does it makes any sense to borrow without any strong need or requirement? After all it is you who has to repay the loan and that at times isn’t so pleasant. As EMIs are directly dependent on the amount borrowed, always take a loan which you can easily repay.

2. Repay the EMIs timely –

Late repayments would incur disciplinary action which may end up with paying of penalties and spoiling your CIBIL score. CIBIL is the basic representation of one’s credit and financial history, and late EMIs directly affect the CIBIL Score. This will affect your borrowing credibility and makes future borrowings difficult.

3. Tenure should be as short as possible –

Though longer tenure is appealing as it lowers the EMIs, but in the long run the borrower unknowingly ends up paying a lot more than the borrowed amount in the form of interest. With shorter tenure, the EMIs would be a bit more but in this the loan can be repaid in a shorter time, hence paying less amount as the interest to the lender.

4. Opt for Insurance for a Large Loan Amounts

Loan insurance safeguards the borrower’s family for future by repaying the loan when the borrower fails to repay. Most of the loan insurance covers major accidents, job loss, permanent and temporary disabilities and death too. So in these cases the insurance company will pay the remaining EMIs.

5. Choose the best lender –

Before deciding to opt for a personal loan, research and compare from the various options of lenders available. Compare the different interest rates and charges, then select the best lender which suits your eligibility, desired loan amount and tenure.

6. Understand the agreement policy before signing –

While applying for any kind of loan the borrower has to sign a loan agreement. Often people sign it without going through the details mentioned like the the terms and policies and end up with unexpected charges and difficulties later in the future.

7. Prepay as and when possible –

Prepaying a personal loan will help to save a significant amount on the interest which has to be paid throughout the tenure to the lender. So any bonus, incentives, hike which provides extra money can be saved and used to prepay the personal loan. Being debt free will let you utilise the money for other purposes, which was otherwise going into loan repayment.

8. Don’t avail another Loan before Closing the First One –

Going for personal loan one after another, without ending the previous one shows that the borrower is credit hungry and doesn’t have financial stability. The lender might even reject the application which in turn will bring down the CIBIL Score and make future borrowings difficult. However, if the previous personal loan is at a higher interest rate, it makes complete sense to go for a new one to close off the previous higher interest loan(s). If there are multiple loans, then a debt consolidation will help reduce the EMI burden and also improve the CIBIL Score over time.

9. Calculate EMI before applying for a Personal Loan

Calculating the EMIs in advance gives a better picture about the future loan repayment with tenure and how it would affect the monthly budget. Online EMI calculators are available at most lender’s websites where it is easy to calculate EMIs with a few clicks.

CONVERT YOUR RENT TO EMI!