A personal loan can come handy in many different situations. Whether it is an emergency need or an aspirational need, a personal loan stands as one of your best financing options. With quick approvals, instant processing, and easy application, personal loans through an instant loan app have emerged as the most preferred financing tool.However, before you apply for a personal loan, you must know the crucial aspects that affect your loan application.
Read on to discover the important aspects that you must consider before applying for a quick loan.
Aspects to Consider When Using a Personal Loan
A personal loan is a very useful and effective financing tool, which can help you save big when you use it right. It is much more feasible than using a credit card or liquidating your assets. If you manage your debt and investments with smart financing, you can earn more on your investments than paying on your debts. Check out these important aspects before considering a personal loan.
1. The Reason for Taking Out the Loan
When you consider availing a loan, you must first analyse the reason.Responsible borrowing is very important for managing your finances. If you need a loan for managing your medical expenses, educational costs, or to finance your business, then you must also consider your repayment plan.
However, if you want to avail the loan for aspirational purposes, then you must check the total cost associated with the loan. If you are able to repay the loan in a shorter duration, your total interest pay out would be much less, making the loan very affordable. However, if you find it difficult to accommodate the loan in your monthly income, then opt for a lower loan amount.
2. How much Loan Amount do you need?
Another very important factor that you must consider before applying for a loan is to know the loan amount. Many people often end up over-borrowing just because they are eligible for a higher loan amount. But over-borrowing is always a bad idea as you pay interest on every penny you borrow, it is wise to keep your loan amount as minimum as possible.
Thus, before you apply for the loan on an instant loan app, sketch your budget. This is easy if you want the loan for making a high-end purchase like home appliance or electronic gadget. But when it comes to availing the loan for wedding, travel or medical reasons, it might be a bit difficult to pen the budget. In such cases, go for an approximate amount which includes your basic costs and some cushion for extra expenses.
3. What shall be the period of repayment?
The payback term is one of the factors to consider before taking out a quick loan. The word “repayment term” describes the length of time during which you make your EMI payments. Your EMI amount decreases with a longer repayment period.
It is essential to maintain the payback time as brief as feasible because a longer tenure also denotes a higher overall interest rate. However, it is even crucial to make sure that you have the financial means to make on-time EMI payments each month.
4. What’s the rate of interest?
The rate of interest charged is another very crucial aspect that will determine your loan affordability. Your EMI and ability to repay the debt are impacted by the interest rate charged. If the lender is offering you the loan at a high interest rate, then you might consider the other options like an instant loan app.
Always compare the loan offers from different lenders before you submit your loan application. Compare the interest rates and the different features that they are offering. Always opt for a reputed lender who is offering you the loan at a lower interest rate. You may also negotiate this interest rate with your lender if you fulfil all the eligibility criteria of the lender.
5. Can you afford the EMI?
EMI, also known as Equated Monthly Installments, is a crucial consideration when selecting a personal loan. It’s the amount that you pay back to the lender each month, which includes a part of the principal along with the interest.
When you apply for a quick loan, you understand that it must be fully repaid. Even one EMI payment missed might hurt your credit score. So, before taking out a loan, use an EMI calculator to estimate how much you could have to pay in monthly installments.
6. Reliability of the loan app
The reliability of the instant loan app should be one of your top priorities when applying for loans. In the past, banks were the sole lenders but today there are many instant loan apps offering you quick loan at more favourable terms. However, before you apply for the loan through your loan app, make sure to check the lender’s reputation.
You can check out customer reviews, company performance, employee reviews and other parameters before availing the loan. It is very important to check the credibility of the lender before borrowing. Any discrepancy even on the lender’s end could affect your credit score and impact your loan experience.
7. Simplicity of Application Process
It is also important to check the application process and the approval time taken by the lender you choose. If you need an urgent cash loan and the lender takes weeks to verify your details and process your loan, then it would be meaningless to apply for the loan. That’s why check out lenders who could process your loan at the earliest and with minimum hassles.
You can consider instant loan apps that complete the entire loan process within 24 to 48 hours. The paperwork is also simple as you need to submit your basic documentation. The approval and verification process is also done at a super-fast speed with AI and machine learning. You can also check with lenders that offers you pre-approved loan or the one with whom you have an existing relationship.
8. Additional Fees or Charges
Lenders normally impose a minor fee when granting loans. The most common fees are processing fees, loan application fees, penalty fees, cheque bounce fees, foreclosure fees, or cancellation fees. Evaluate the charges offered by different lenders and go for the one where these charges are minimal.
Some lenders also offer waive off on these charges during promotional offers or if you fit into their perfect borrower criteria. Make sure to negotiate these charges with your lender before applying for the loan.
Before submitting a personal loan application, there are numerous factors that you must weigh. This will help you become a responsible borrower, manage your debt well and use your finances in a smarter way. Now that you are aware of what to look for, utilize these guidelines to assist you in selecting the finest loan offer. It’s crucial to determine what is right for you and your financial circumstances rather than following trends.