Personal loan: Ask yourself these 8 questions before taking a loan

Personal loan: As we all know, a personal loan is a popular way to borrow money in case of a cash crunch. This is mainly because of its key feature of 'flexibility'. This means you can choose tenure, repayment, and use according to your needs. The other good feature of this loan is that you don't need to use any assets as collateral. These can be the reasons for a number of people opting for personal loans.
 
Every loan process has some formalities to follow so that a borrower doesn't get any surprises. Therefore, they should checklist a few things before borrowing a personal loan. These include:

Why do you need a personal loan?

Before taking a loan, you should ask yourself if you need a loan. Have you explored every other option to fulfill your financial needs? Do you need money for urgent work like hospitalisation or educational purposes?

To evaluate whether a loan is essential, first assess your financial situation. Examine your income, expenses, and outstanding debt. If you're having trouble paying your bills or have high interest debts, taking a loan may be a good option for you.

Explore other options

Before you decide to take a loan, think about other possible options. If you expect a festival or performance bonus from your company, you should wait. Similarly, if any of your investment is nearing maturity and you expect to receive a substantial sum, use them rather than take a loan.

How much amount do you need?

Although the loan amount is determined by the lender, the personal loan amount you seek should be limited to your real needs. If your borrowing limit exceeds your real requirement, repaying the loan on time may cost you more money. To calculate how much money to borrow, sum all of your bills or anticipated costs to determine the optimal loan amount.

Interest on loan

Your interest rate is determined by several criteria, including the loan amount, your credit score, and the duration of time you will repay the loan. Interest rates can range from 5.99 per cent to more than 29.99 per cent. You will often obtain the lowest interest rate if you have strong or exceptional credit and pick the shortest payback period feasible.

Repay loan EMI

Personal loans include high interest rates and short payback terms, which raise your monthly EMI. To determine your capacity to repay personal loan EMIs, assess whether you can or cannot repay based on your income stability.

Charges to avail of personal loan

There are several charges, which include processing fees, prepayment, closure charges, and late penalty fees. You should be aware of all these charges.

Documents

Documents always differ from lender to lender. So, once you finalise a lender, you can ask them about the documents. For online applications, one should always scan the documents and keep them handy to upload on the lender's website.

Co-applicant

To add a co-applicant, it is largely dependent on your credit profile. If your income is inadequate to fulfill the lender's minimal qualifying requirements, adding a co-applicant may benefit you. Meanwhile, a co-applicant should have a stable income and a solid track record of debt payments as they share equal responsibility for paying the EMI.