It might happen that you may need to make a big-ticket purchase (a TV, refrigerator, or two-wheeler). However, you might not have adequate savings. This is where personal loans come in. Personal loans basically are unsecured loans, and hence are becoming quite popular. This makes them very useful when you are in dire need of money. Also, the money is transferred directly into your personal bank account, so that you can use it according to your convenience.
However, personal loans are not all sunshine and rainbows, and hence, you must always check each and everything about the loans, including the terms and conditions. Here are some things that you should always consider before you collect the documents required for personal loans.
- Watch Out for Interest Rates
Personal loans are easy to get, and most of the times all those e-mails from banks make you think that they’re tailor-made for you. But keep in mind that these loans are unsecured, which is why they have a higher interest rate. This is because the lender does not keep anything as collateral. Hence, always check if the loan is being offered on flat interest rates or on a reducing value basis.
- Beware of Penalty Charges
As mentioned above, personal loans are unsecured, and they can be applied for and claimed pretty quickly, hence, the lender doesn’t keep anything as a collateral. This is why failure to pay the loan back on time can attract heavy penalties on your loan account. Hence, you should be aware of the penalty charges you may face in the future, in order to avoid a major financial setback.
- Apply for a Personal Loans Only if you Really Need it
Before you submit the documents required for personal loans – note this fact – Apply only if you really need them, as the interest rates are very high, and the penalty can be severe. Hence, you should take a loan only to the extent required, even if the bank representative says you’re eligible. If you need a loan of Rs.5 lakhs, apply for a loan of that amount only, do not apply for a higher amount just because your representative says you’re eligible for it.
- Try to Avoid Add-On Offers
Banks will try to sell you various add-ons along with personal loans, like an accidental insurance policy. They may seem attractive to you, because they say you won’t have to pay anything upfront, and that it will just be added to your Easy Monthly Instalments. But having to pay interest on your premium along with the high-interest rates of the personal loans will drain your pockets.
- Check Other Options and Try to Find Better Rates
Don’t just apply for a personal loan at the first bank you see. It is very important that you do thorough research about interest rates and other factors while applying for personal loans. Only after you are sure that you can pay your loan off in time, should you apply for a personal loan.
Hence, in conclusion, personal loans should not be the first option for you, but rather it should be a last resort. These points should help you make an informed decision of things to consider before going for a personal loan.