There are several factors a person may need to consider before applying for a personal loan. It is an important financial decision that should not be taken without asking oneself certain important questions.
Firstly, what is a personal loan?
A personal loan is one where an individual or an organisation does not require collateral to lend out the money. A personal loan can be for any unspecified needs and usually are much easier to process than any other type of loan.
What are some of the things that people need to consider?
- Personal needs and finances – Start with the basic questions. Why do you need a loan? How much money will be enough? Can you support the EMIs in the long run? Is there any other financial move you are about to make? Note the answers down to understand the role a loan will play in your finances. People take loans in need. But it is still important to understand the implications associated with a loan. Before considering a loan, always consider if there is any other source of money you can avail. If not, there are more than enough loan options in the market to choose from.
- Eligibility for the loan - Different financial organisations will have different requirements for a person to be eligible to apply and acquire a loan. Sometimes there can be separate requirements for application and approval. With much information available on the internet and a plethora of personal loan apps, determine beforehand whether you meet the eligibility requirements of a particular bank or NBFC or online personal loan services. Be it age, nationality, job, and income status, monthly or yearly earnings, documentation, credit scores there can be many criteria to be met.
- The best lending organisation – Search and compare loan terms and conditions from multiple lenders. Include both organisations you have existing financial relationships with and other organisations that are in the loan business. The interest rate is also not the only factor one should check. There are factors like processing fee, additional charges, number of EMIs allowed, mode of transaction, and many more that need to be considered. Apart from this, check the credibility and customer reviews of lending organisations.
- Processing of the loan – After a borrower has applied for a loan, the main work begins. The loan application is considered by the bank or the NBFC and determined whether the application meets all their criteria. The borrower could be called in for a face to face meeting (or a virtual meet, in light of current social situations). The borrower needs to be prepared with answers for this meeting. Due to online apps, the processing of instant loan has been reduced to a maximum of a week, including the disbursement of money.
- Repayment options – A borrower must draw up a definite repayment plan even before the loan is sanctioned. As a matter of fact, in many cases, a repayment plan may be necessary for the loan to be sanctioned. A bank or an NBFC will most definitely want to know about an applicant’s repayment plan even if personal loan apps do not. The borrower may not go through with the repayment plan that they initially present to the lender, but there still needs to be a set plan. From a very practical perspective, it is very unwise to borrow money if there is no idea as to how that money can be repaid. Loans are necessary and sometimes it is about immediate access to money. But in those cases where a repayment plan cannot be determined, finance experts suggest first asking for help from family and friends than a lending organisation.
The above points aim to give a direction to the borrower regarding the thought process before availing of a loan. There are financial advisors available with banks, NBFCs, and personal loan apps, who can assist with the complete planning of a loan, starting from terms to disbursement to repayment. Also, talk to your family and friends for advice if need be.
Disclaimer: No Deccan Chronicle journalist was involved in creating this content. The group also takes no responsibility for this content.