In an event of a cash crunch or an urgent requirement of finance, loan becomes a great option. You may consider borrowing a loan from a bank when you need it the most.
Borrow a personal loan and utilize it to meet your credit needs. Following are ten things to consider while borrowing such a loan:
1. Opt for a monthly reducing interest rate
While some banks calculate interest rates on an annual reducing basis, some do it on a monthly basis. You may opt for a monthly reducing loan cycle as it helps to save a significant amount of money. This is because such a cycle uses a method of calculation where the principal amount is reduced every time a monthly installment is paid and the interest is then calculated on the outstanding amount.
2. Choose a bank that offers waiver of fees for existing account holders
To get the best terms of the loan, you may contact your local bank. Banks generally provide waiver of certain charges and fees for existing account holders, thereby helping you save a great deal of money.
3. Apply with a co-applicant
Applying for a loan with a co-applicant increases your chance of getting your loan approved. This is because the income of the co-applicant supplements your income. The lender is then assured of your ability to repay the loan.
4. Check prepayment penalty
At times, you may receive additional income due to sale of an asset or bonus from work. You may then wish to make a prepayment on your loan. Some banks levy a prepayment penalty. It is, therefore, imperative to check how much the bank charges towards prepayment.
5. Shop around
The most important aspect to consider while borrowing a loan is the rate of interest. Compare personal loan interest rates offered by numerous banks and choose the one that offers the lowest interest rate.
6. Determine your ability to repay
Borrowing more than you are able to afford will put a huge strain on your finances. It is, therefore, important to assess your cash flows and identify the amount you are able to pay towards your monthly installments.
7. Check the terms of the deal
Besides interest rate, other important aspects to consider include borrowing amount, loan tenure, and repayment schemes, among many others. You may check such terms offered by the lender and borrow only if the terms are suitable to your needs.
8. Avoid any add-ons
Banks may pitch for other products such as insurance plans. Saying yes to such add-ons will result in additional cash outflow. You may flatly refuse such add-ons if your budget does not allow you to do so.
9. Consider your needs
Many make the mistake of borrowing an amount they are eligible for instead of borrowing how much they need. Borrowing a higher amount will require you to pay a greater interest rate. Assess your financial needs and borrow how much you actually require.
10. Check your credit history
Banks conduct an extensive check on your credit score and your credit history before approving a loan application. Check your score to identify your prospects on getting a loan sanction. You may also check your credit score for any mistakes and rectify them, if any.
Keep these points in mind and choose the best loan suited to your needs.