FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Things to remember about your personal loan
Evaluate all loan offers. The first condition for loan offer selection is the total money outflow that the loan will cost. The second factor is the EMI. A loan offer with a lower EMI and a longer tenure may seem attractive, as it could be easy on your purse strings, however not all such loans prove to be cost effective in the long run. Hence, first calculate the total loan cost and then try to opt for a higher EMI, which you can comfortably manage to enable a shorter loan tenure.
Personal loans constitute around 17% of the retail loan market share. However, in recent times banks have tightened unsecured lending due to the prevailing financial uncertainty and the increasing number of defaults in this segment. The focus of the banks currently is to keep defaults to a minimum. However, a personal loan for the credit worthy is indeed a boon in the hour of sudden need. This article explores the advantages of a personal loan for such an individual and provides a checklist one needs to keep track of when choosing a loan offer.
Why an unsecured loan
A secured loan would mean that you need to pledge a house or other forms of security as collateral to obtain the loan. However, a personal loan needs no such security pledge.
An unsecured loan is easier and less time consuming to access compared to a secured loan, which has a longer processing time. A personal loan can be accessed within a day’s notice and is easy to procure with minimal documentation. The borrowing range varies between Rs.50,000 and Rs.20L and the repayment tenure ranges from a year to 5 yrs.
The purpose for an unsecured loan is loosely defined and is not intended for one specific use, you could obtain it for wedding expenses, cruise holidays, as an education fund, to pay up sudden hospitalization expenses, purchase a car or a consumer durable and so on.
Six pointers to choose your personal loan
Calculating the cheapest loan offer: Personal loans come with very high interest rates ranging from 14% to 24%. Compare interest rates and get the complete picture by understanding the annualized interest rates for each offer. Then figure out the total amount of repayment you need to shell out with all the offers before opting for the loan of your choice.
Processing fee et al: You need to keep in mind the processing fee and other fees that will be levied when you apply for your personal loan.
Prepayment penalty check: Ask upfront if there would be any penalty payments for prepayment of the loan at any point in time. More often than not loan consumers tend to pay up their loans earlier than planned to be rid of debt. Hence, its important to know if your personal loan offer allows part prepayments. If that is the case, then you should be aware from what time frame in the loan period you can start prepaying and understand the cost you incur due to such prepayments in part or full.
EMI and tenure: Evaluate all loan offers. The first condition for loan offer selection is the total money outflow that the loan will cost. The second factor is the EMI. A loan offer with a lower EMI and a longer tenure may seem attractive, as it could be easy on your purse strings, however not all such loans prove to be cost effective in the long run. Hence, first calculate the total loan cost and then try to opt for a higher EMI, which you can comfortably manage to enable a shorter loan tenure.
Keeping track of your credit history: Especially in the case of unsecured loans, your credit history, which is recorded by CIBIL ( Credit Bureau India Limited) plays a critical role in your loan application being accepted. A good repayment track record ensures not only an instant loan approval but brownie points in the form of more attractive interest rates.
A personal loan is the best way out when you cannot access your personal savings to meet an unexpectedly huge expense. These pointers should help you on your way in landing the best deal on your personal loan.