Personal loan is a popular credit product in India. And for valid reasons this form of loan has gained so much popularity. Increasingly people are opting for personal loan to meet various fund requirements. But are you ready to pick up this loan? Read on to find out what you should be looking at before applying for one.
Do you really need additional funds?
There are times when on account of an exigency or any other unforeseen expense, one may fall short of funds. These are the times when one would want to raise funds through a lending institution. However, on account of ease of the loan process and faster disbursal processes, one may even tend to apply for this loan even while it may not be required. So first check the funds available with you and if the requirement can be managed within the available money, it may be a better idea to avoid the loan. End of the day, you would get to pay the personal loan interest rate on the amount that you avail.
Purpose of end use
This is one product that does not define the end use of loan proceeds. Means that the money can be used for any purpose. Right from marriage to medical. But you must dwell upon the purpose that you are going to utilize this loan amount for. In case the same is being used to buy a product or service that is not required immediately or the purchase can be deferred, then avoiding the burden of monthly installment repayment is advisable. There have been instances of people picking up the loan for travel and entertainment which is not advisable from prudent financial perspective.
Money required for short term
Is the money required for a short term only is the question that you must answer before you sign on that dotted line. The term of loan in this product is for up to 60 months only and if you feel that loan cannot be paid within this term, then other options should be evaluated.
Another factor that you must bear in mind is that the term of loan should be kept at the lowest possible tenor. Few people take loan for a longer period just because of the availability of the option. This is completely avoidable.
Quantum of funds
To find out if you are ready to take a personal loan, you must check if you have adequate income to bear the burden of loan. While the banks follow simple formula for calculation of eligibility (50% of the net monthly income can be adjusted towards servicing of all loan EMIs) they may not be aware of the actual costs that you may have. Old parents’ medical, child’s schooling or other education costs, property upkeep etc can be substantially high and the available disposable income can be lower than 50% benchmark set by lending institutions. You must calculate your liabilities correctly since an error on this front can lead to defaults and severely impact your credit profile.
Check your bureau report
This is another task that one should complete before applying for the loan. Obtaining your free CIBIL report takes just few minutes. Going through the current status will help in understanding and resolution of the issues in advance and hence save from the embarrassment of getting a rejection letter. It will also help in making alternate arrangements (if the need arise on account of low CIBIL score) and not losing out the critical time waiting for the loan approval process.
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