All You Need to Know if You're Taking a Personal Loan for the First Time

All you need to know if you’re taking a personal loan for the first time

Being unsecured loans, personal loans do not require you to arrange for any security deposit while availing funds. In cases when you have an urgent requirement for funds, a personal loan can be your best bet to sail through the difficult times. With minimal documentation process, a personal loan can give you the necessary boost to meet extra expenses or cover an unforeseen emergency situation.

There are many benefits associated with personal loans, and the decision to opt for one is a big one and must be made after careful analysis. It is, therefore, important for first-time applicants to gain proper knowledge about personal loans and also to analyse your own financial situation before taking a decision.

Understand your requirements: You must apply for a personal loan only after you have thoroughly assessed your requirements for a loan. You can opt for a personal loan if you are unable to meet with a sudden expenditure like a medical emergency, home renovation or wedding in the family. Since the loan has to be paid through EMIs, the borrower must bear in mind to be financially ready for this monthly commitment towards their bank. Thus, in order to do so, you must determine whether you can regularly pay the minimum due amount to the bank or not.

Credit Score: You don’t really have to know your credit score as long as you pay your dues on time and do not default on any loan amount while applying for a new loan. Additionally, a good credit score tends to determine the credibility of the borrower and can exponentially increase the chances of loan approval – which is not the single most criteria for approving the loan application.

Calculate the total outflow: You must know the total amount you will have to shell out after availing the loan. This includes EMI, monthly expenses, emergency corpus, etc. Furthermore, you must also take into consideration the cost of procuring the loan in terms of processing charges and application fee. These charges vary from bank to bank so an in-depth knowledge of such costs will work in your favour.

Repayment structure: You should also understand the repayment structure of the loan as the same could have an impact on the total amount you will spend on repaying the loan. For instance, lower EMIs over a longer tenure might be more expensive for you in the long run and vice versa.

Additional charges to be levied: You must read and understand the fine print of the loan document, especially the circumstance which may attract additional charges. These are –

Late fee: Banks levy late fee charges in case of non-payment of EMIs on more than one occasion.

Cheque bounce charges: Banks might also ask you to pay the penalty in case your cheque gets bounced.

It always makes sense to repay a loan as early as possible, whether it be through bonus from your employer, gains from investment or savings. Pre-payments ensure that the tenure of the loan does not increase beyond your capability to repay the same.