Applying for the personal loan is not a bad idea but not even a good idea as you are borrowing loan from your future income basically. So one shall be really thoughtful while borrowing money to satisfy the unnecessary desires. Borrowing money is not a big deal, it can be borrowed from the banks, relatives, family or friends. Whereas, the purpose of borrowing it shall be satisfying the burden, that it will cause you later. Although there is no requirement of collateral (house or car) in the personal loan. Which means, that if in any case, you are unable to pay off the loan, the bank cannot actually seize any of your assets. Thus, these loans are known as “Unsecured loans”. Personal loans are mainly issued with a fixed amount of interest and a fixed amount of repayment. Also, the interest rates as compared to the other loans are relatively high.
Where should one utilize personal loans?
Personal loans can be satisfying if one has a good credit score. Apart from this, one shall only borrow personal loans if the need is significant; maybe a medical concern, unexpected emergency or any other cause with a strong rationale. Moreover, one shall consider the fact that the loan shall only be borrowed if you are assured that you can return it in the particular time frame. One shall also question himself before borrowing “whether the concern is actually genuine to borrow the loan?”
People borrow loans to consolidate their debts. The notion behind consolidating the debt is that the person will pay off prior debts by the new debt in order to pay off a reduced rate of interest. This procedure is undertaken to manage the debts in a convenient manner. You must be thinking why not you should opt for borrowing the loan when you want to fulfill any of your vacation plans or buying some expensive gifts or maybe for arranging a party and so on. As in both the cases you need to pay off the debt. But the only thing to think through is, “do you have any extra income for repaying the debt”. As for the case you are willing to borrow the loan is already out of your pocket so how can it be possible to manage your routine expenses with the burden of loan installments later.
Factors to be considered while borrowing personal loan
While starting to search for the best available contract of personal loan one should be aware of the following elements
Comparison of the interest rate
One shall compare the interest rates being offered by the lenders and then opt for the lender who is offering the minimum rate of interest. It is a particular percentage of the amount that has to be paid along with the principal amount. Interest rates are predefined and there are very rare cases in which they fluctuate throughout the life of the loan.
Annual Percentage Rate (APR)
The Annual Percentage Rate is the interest rate along with the other fees that have to be paid by the borrower annually. These fees are inclusive of the “origination fees and service charges”. The APR ranges from 7% to 36%. However, it is marked as the total annual cost of borrowing the money.
Ranges of the borrowing amount
Loans are usually offered on the basis of the borrower’s credit score. Some lenders offer higher amounts depending on the client’s credit history and the vice versa.
The duration of the repayment
It is the time duration under which the borrower is supposed to return the loan amount along with the APR. The monthly installments to be paid against the personal loan are usually fixed and they may range between some months to a time frame of six years.
Penalties on pre-payment
Few lenders charge prepayment penalties; which refer to the fine that will be charged if you are willing to end up the loan term earlier, by paying off the entire debt before the decided time frame. Thus, if one foresees the chances of repaying the debt earlier then they must consider the lenders who offer loan without pre-payment penalties.
Other charges on the debt
These charges comprise of origination fee and service charges by the lender while providing the loan. These charges are not hidden and shall be discussed in-depth before the contract of receiving the personal loan. The fee for commencing personal loan ranges from 1% to 6% of the borrowed loan.
Requirements for a personal loan
The procedure of the personal loan is not excruciating. Online lenders are also available now. However, the rates being provided by the lenders vary from one another. So, having thorough research or to shop around before finalizing the lender is not a bad idea. The lenders are generally interested in your credit history and credit score to ensure that whether providing the loan will be worthy or not. As higher the credit score the more amount of loan will be apportioned to the applicant. Employment and income details along with the debt-to-income ratio of the applicant are also considered before the approval of the personal loan.
Personal loans are significant in the cases of any sudden crisis, consolidating any debt or to overcome any financial circumstances but the decision of borrowing should be well thought-out meticulously. Afterward, if one is assured that the decision is upright it should be embarked on assertively.