People prefer to stay far away from bank loans in order to avoid financial liability. But sometimes, in case of an emergency, necessity pushes us to use the credit options. A personal loan buys you some time to rework and manage your monthly expenses. This loan can be a real lifesaver, allowing you to pay urgent bills such as income taxes, a deposit for a place to live, school expenses, or medical bills.
If you have a steady income or if you have an asset, getting a personal loan should not be a problem, subject to the standard creditworthiness of the would-be debtor.
The factors you must consider before taking a personal loan are: your current income, current expenditure, the future prospects and existing debts.
Where to Apply for Personal Loans
There are several banks and financial companies that provide personal loans. These days, you’re more likely to find the best rates through an online lender. Even so, most lenders still use a credit score to determine your creditworthiness and rates.
It may be easier to get a personal loan from a bank you already have an account with. The bank will most likely want to know what you’re going to do with the money and may even suggest a better loan scheme that suits your requirements.
What is EMI?
EMI is “Equated Monthly Instalment” or simply, the amount that is payable per month if you take a personal loan. For this, a personal loan calculator can be used and the calculation of EMI is done on the basis of three main factors: loan amount, the interest rate the bank will charge for the loan, and the period for which you will take the loan.
Whether you want to find your eligibility for the maximum loan amount that you can afford, the tenure saved after part pre-payment, or know the loan amount available for a fixed EMI, the personal loan calculator gives you the complete solution.
How to Get the Best Personal Loan Deal
Do not accept the first deal that you are offered by your bank or financial institution.
Check and see which providers are offering the cheapest annual percentage rates. Then compare the representative APRs. A comparison website can also help you understand this.
Benefits of a Personal Loan
Flexibility: Personal loans are used for various purposes, ranging from travel expenses, medical payments, purchasing the latest jewellery, or your house/car repair work.
Quick Availability: Getting personal loans is very quick and hassle-free. In some cases, you can get the loan even within 24 hours. So if you are looking for emergency funds, personal loans are your best bet.
Minimal Documentation Required: Usually, personal loans don’t require much documentation when compared to a home loan or a car loan. Hence the processing time is much faster.
Security is Not Needed: The need for collateral is not required to obtain this loan and the loan tenure is much shorter compared to a home loan or car loan. This has less risk for the borrower in case if you are unable to repay the loan, however, your security is surrendered in case of other loans. As personal loans don’t need any security, your assets are safe. This kind of loan is comfortable for those who don’t own any assets like a car or a home.
Now that you know all you need to know about personal loans, let’s look at the ways to use this credit option effectively.
1. Getting Out of Debt
You can take a personal loan to cover your debts like your credit card bills. The interest rates on personal loans are usually fixed and the rate will not rise unless there’s a penalty.
2. To Improve Your Credit Score
A personal loan makes it easy to improve your credit history. And for this, it is necessary to make the repayments on the scheduled time and avoid any failures. It should be noted that you will be able to lessen the debt usage ratio which is considered by credit rating agencies by using personal loans. For example, if you have too much debt on your credit card and any other kind of consumer loans, your debt ratio will increase and this will have a negative impact on your credit score. Your credit score is very important because the higher your credit score is, the better the interest rate you will get on a personal loan.
3. Invest in Something Profitable
The best kind of loan is one that helps you in procuring an asset or something that will benefit you positively in the long run, therefore, purchasing a house or starting a business is a great idea. Starting a business is an awesome way to make extra money and get your finances on the right track.
4. To Save Money
If you meet the requirements for a personal loan at a lower interest rate than whatever you are currently paying, you can save money on that by refinancing. For example, let’s say you have a credit card balance at a higher interest rate; if you get to refinance the same with a personal loan at a relatively lower interest rate, you will save some money in the first year alone. And if it takes you two to three years to pay off that debt, you can save a sizeable amount.
5. Cash Shortfall in the Middle of the Month
When something unforeseen happens, such as your car breaking down, then this kind of loan can really help you. If you haven’t planned on the expense for repairs or a replacement, but at the same time cannot manage without a vehicle, a personal loan can help you resolve the problem quickly without any inconvenience.
If you use a personal loan sensibly, and pay it off on time, then it can be the jump-start you need to get your finances going in the right direction. For availing any kind of loan, the ultimate principle is: Be sure of what you are doing and don’t live beyond your means.