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Life is full of surprising twists and turns. While some are pleasant and bring you prosperity, some others will put you under financial duress.
Encountering the second scenario can cause you a lot of stress but it doesn’t have to.
Personal loans can come to your rescue whenever you are in financial duress. They are much easier to avail when compared to other loans. You will get the money in your account or through a cash card in a matter of hours at the maximum.
Wondering what the conditions for availing of a personal loan and the factors you should consider? Here is everything you need to know.
What Are Personal Loans?
A personal loan is an unsecured loan. This means that you do not have to submit any collateral to avail of the loan. Then what are the criteria for issuing the loan?
Well, the lenders consider your credit history and your current income. If you have a proper credit score and you show that you have enough income, even after deducing any other debts you may have to meet the monthly repayments of the loan; the lender will issue the loan to you.
Personal loans are multi-purpose. You can use them in any way you please. Whether it is to meet a medical emergency, finance a loan, meet holiday expenses, renovate your house or any other need, you can get a personal loan to meet the shortage in funds.
Features of a Personal Loan
A personal loan is different from other loans in many ways. Here are some of its features.
The amount for the personal loan can vary anywhere between INR 1000 to INR 5 lakhs on average. Depending on the lender, you can avail of a loan of a higher amount.
Since a personal loan is unsecured, it attracts higher interest rates when compared to other loans such as a home loan or car loan.
The lender finalises the interest rate based on various factors such as the loan amount, its tenure, your credit history, etc. Typically, the interest rate will lie anywhere between 10% APR to 59.99% APR.
As with the loan amount, you have the freedom to choose the tenure of the personal loan. The tenure typically varies between three months to seven years.
The lender will also charge you a small processing fee. It is always wise to read all the documents carefully before you take the loan.
Certain lenders tend to charge hidden fees. However, a reputed lender will only charge a low processing fee.
Eligibility Criteria for Personal Loan
Compared to other loans, personal loans are easier to get. However, the lender will have certain eligibility criteria to ensure that you can repay the loan.
These may vary from lender to lender. However, most of them follow a common theme.
Here are some general eligibility criteria for personal loans.
Nature of Employment
The best part about personal loans is that you are eligible for them whether you are salaried, self-employed or an entrepreneur.
If you are a salaried individual, then you should be between 21 and 58 years. If you an entrepreneur or a self-employed individual, then the age limit becomes 25 to 65 years.
The lender needs to be sure that you can afford to pay the monthly EMIs. For this, they look at your income and set a minimum income. It is usually around INR 25,000.
Your credit score is a reflection of your past fiscal behaviour. A good score indicates that you are good at managing debt.
A low score indicates that you have mismanaged one or more debts. You may have defaulted on a loan or missed payments.
Lenders are usually wary of giving loans to individuals with a low credit score. The assumption is that if you have mismanaged a debt in the past, then you are more likely to do it again. Some may give you the loan but charge a high-interest rate since the risk associated with the loan is high.
What Factors to Consider While Taking a Personal Loan?
Once you know that you are eligible for the personal loan, you have to make various decisions regarding the tenure of the loan and loan amount. These decisions can impact your ability to repay the loan and, therefore, require careful consideration.
Selecting Loan Amount
When there is a financial emergency, you have to ensure that the loan you are taking is enough to meet the requirement. At the same time, you should also ensure that you are not borrowing too much.
Many make the mistake of borrowing more than they need. Since your interest is directly proportional to the loan amount, a higher loan amount naturally translates to a higher interest paid.
When your tenure is high, your monthly EMI reduces. However, you do end up paying more interest. If you choose a tenure that is too low, then your EMI will be high. You have to find a balance while selecting the tenure.
Ask for Lower Interest Rate
The interest rate on your personal loan impacts your monthly payments. If you have a good credit score, then you can ask the lender to lower the interest. Sometimes, you can even ask for a lower interest rate.
You may even suggest that you are considering other lenders for the loan. With the high competition in the market, many are likely to lower the interest rate to retain you as a customer.
Maintain a Good Credit Score
While this is more of a long-term strategy, it is one of the best things that you can do for your finances. Maintaining a proper credit score ensures that you will always get the best interest rates and will never be denied a loan.
Create a Schedule to Repay the Loan
Once you have the loan, the next step is to ensure that you never miss a payment. Set a reminder to ensure that you check your bank account and have the money for the EMI ready.
Whether you are borrowing from elsewhere or using the best credit line app, a personal loan can be a lifesaver in many situations. Choose the right loan amount and tenure and make sure not to miss any monthly repayments.
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