Personal loans can be of immense help in two different kinds of situations – when you are low and when you are on a high. The lows can come in the face of sudden financial emergencies when you urgently need cash quickly. You can experience the highs when you are buying a dream device/gadget of yours or even to go for a dream vacation. But a personal loan is expensive and, if taken mindlessly, could cause you serious financial injury.
Measure repayment potential
All loans should be linked to your potential to repay them. Before applying for a loan, understand how much you can repay. Financial strategists say, ideally EMIs (equated monthly instalment) should never exceed 35-40% of your monthly income.
Apply for the minimum amount
You don’t have to pledge any asset to get a loan. Therefore, all personal loans carry a big interest cost. Therefore, you must try to take the minimum amount that will serve your purpose. Over borrowing can lead you to a debt trap.
Last resort
In an emergency, try to secure the necessary funds through other means like seeking help from family members, relatives or friends. You can also dig into your assets and see whether you can pledge something to take a loan. Loans that are taken after pledging an asset should always carry a lower interest rate than an unsecured loan. Taking a personal loan should be the last resort.
Study the market first
Before applying for a loan, find out the rates of interest banks or financial institutions are offering. All lending institutions announce their latest interest rates on their website.
Never default on EMI payment
Failure to pay an EMI on time can adversely impact your credit score. Any lending institution lends on the basis of credit scores and if it is impacted it will be difficult to secure another loan in the future.
Look out for refinancing options
Refinancing options can be an effective way of reducing your debt burden when interest rates go down. If you current lender is not ready to reduce the applicable rates, you can always seek refinancing options from a different lender who might charge you less interest.
Even after the RBI raised interest rates on them, the personal loans in Indian banks rose by 17.7% in FY24, reflecting the huge appetite for these loans in the country. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
