Personal loans are commonly used because of their one major feature- flexibility. It offers flexibility in terms of repayment, tenure, and usage. Moreover, financial institutions provide this loan without asking you to put any assets as collateral. And due to all this, the number of people turning towards personal loans have increased in recent times.

However, before applying for this loan, you need to ask yourself several questions that are outlined below.

Q.1. Why do I need a personal loan?

There is a motive behind every move that we humans make. The same applies to a personal loan. If you are looking for a loan to cover your everyday needs, think about how you will pay back your debts. Think twice if you are looking for funds to spend on wasteful things that are not required.

Q.2. Do I really need a personal loan?

Borrowing funds from a lender means you are bound by certain terms and conditions. It means you will have to put a portion of your future earnings to meet your monthly debt obligations. If you have a limited income and don’t see any improvement in your finances in future, think twice. Never apply for this loan if it is putting stress on your budget.

Q.3. What other options do I have?

Before you finalize your decision on availing of a loan, look out for available options.  It’s better to wait if you are expecting any festival or performance bonus from your employer. Similarly, if your investment is reaching maturity and you will be receiving a large sum from it, instead of taking out a loan, use it.

Q.4. What is my credit score?

Financial institutions assess your credit report. If it is in poor shape, they will deny you a loan. And if not, they will charge you a high interest to cover any potential default risk.

Therefore, reviewing one’s credit score before applying for this loan should be the first thing.

Q.5. Do I have any documents that support my income?

In India, individuals earn through several sources. However, they don’t have any documents that support their income. Financial institutions are not only interested in your income but are also keen to check if you are earning consistently.

If you are new to your job, spend some time in your existing organisation and don’t forget to request your employer to share a salary slip every month to your email address.

Q.6. Do I have to add a co-applicant?

The answer to this question entirely depends upon your credit profile. If your income is insufficient to fulfil the lender’s minimum qualifying criteria, adding a co-applicant can work in your favour. However, keep the below two conditions in mind if you do so.

  • Co-applicant must earn a consistent income and have a clear history of debt repayment.
  • They are equally responsible for paying the EMI.

Q.7. Is the EMI within my budget?

To get the answer to this question, use a personal loan EMI calculator. It will help you determine your affordability. In addition to that, you can also use this tool to draw comparisons between various lending institutions.

Q.8. Can I repay my debt without any difficulty?

To get the answer to this question, review all your existing financial commitments. Make a list of all essential expenses. Some of the expenses that you can’t afford to overlook are outlined below.

  • Child’s education fees
  • Utility bill payment
  • House and water tax
  • Insurance premium
  • Emergency funds for meeting unforeseen expenses
  • Household expenses

After deducting these expenses from your monthly income, if you are still left with 50% of your income, go ahead with your decision of taking out a loan.

Q.9. What tenure should I choose?

Use a personal loan EMI calculator to choose the ideal tenure. Loan tenure has a direct relation with your interest rate and EMI. When you choose a shorter tenure, the EMI is increased, but the interest rate will be reduced. Whereas longer tenure reduces the EMI, but still you will end up paying a higher interest component.

Q.10. Can I foreclose my loan?

Another crucial question that you should ask yourself and the lender is related to foreclosure. Many financial institutions allow prepayment only if the borrower has successfully paid the first 12 months of EMI. In addition to that, you must also check the foreclosure fee with the lender. 

Q.11. When will I be required to put my personal assets up as security with the lender?

This question comes to the picture when you don’t meet the lender’s minimum eligibility conditions. As a result, you pledge your personal assets to ensure that the lender’s funds will not be lost in the event of default.

To Conclude:

The aforementioned questions to yourself provide answers to a variety of scenarios. It assists you in determining your need while also revealing whether or not you will be able to repay your personal loan.

Also read | What is high-risk auto insurance?



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  1. My daughter is starting college soon and since we weren’t able to secure a scholarship for her, I’ll have to avail of a personal loan to help pay her tuition. Thank you for mentioning how a credit score helps determine loan eligibility, and they can either deny you or charge you with a high interest if your score is bad. I’ll have to make sure I look into a credible lending institution as well that can offer financial help.

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