With the falling interest rates and long repayment tenure, loans have become a quick go-to option for individuals as well as businesses. Availing of a loan allows individuals to fulfill their financial obligations and achieve their long-term financial goals.
Considering the increasing loan options available for individuals, it often becomes confusing to make the right choice. Depending on the purpose and the requirement of a loan, an individual should approach a bank or a financial institution.
One of the best options is a personal loan. Such a loan can be utilized for meeting personal expenses, setting up a business, clubbing the outstanding dues against a single loan, taking a vacation, and much more. It has an easy application process with a basic documentation requirement. The process is also quick and transparent, which ensures a fast turnaround time and swift disbursal of funds.
Although the loan application and approval process is hassle-free and easy, it is advisable for individuals to gain complete knowledge about the type of loan they plan to take. Some of the points that individuals must be aware of are as follows:
Purpose of a loan
Individuals should apply for a personal loan only when there are no other means to meet their financial requirements. Since the loan will carry an interest rate and will have to be repaid in regular installments, it is a smart move to reconsider one’s current financial condition before applying for it.
Terms and conditions of a loan
Detailed information about the rate of interest, tenure of repayment, and the amount of repayment should be gathered. In addition, one should understand all the pros and cons of the loan and clarify all doubts before making a move.
One should calculate the total outflow of the loan. In other words, make sure you calculate the amount of money that will be spent over and above the loan amount. This includes the amount of interest that will be payable until the entire amount of loan is repaid. Remember, a lower Equated Monthly Installment (EMI) for a longer tenure becomes more expensive as an individual has to pay a larger interest amount for a longer period of time. Hence, it is ideal to opt for large EMIs and pay off the loan as early as possible.
Processing fees and other bank charges
Different banks and financial institutions charge different percentages of processing fees. So, this should be ideally verified before applying for a loan. Also, there are documentation charges, pre-payment fees, and penalties in case of a default, which need to be studied before the loan is processed.
Never be fooled with special offers and schemes. Take your time and study the entire loan documentation before you take it forward.