Both 2020 and 2021 were terrible years for the economy. Flash coronavirus and quarantine the ensuing severe impact on livelihoods. When everything was closed, people faced problems to cover their expenses and had to resort to loans. Although credit cards are an easy option, personal loans still preferable because they are the cheapest and available at an interest rate of 10.25%. If you are faced with a sudden demand for cash, personal loans may be a good option for you.
It is important to do your research and explore all the options available before taking on a particular personal loan. Here’s what to keep in mind.
Today, borrowers can get a personal loan through their phone without leaving their home. The market is flooded with options and this leads to confusion. A thorough research is advisable, and an online aggregator platform can come in handy to make sure you don’t miss out on deals. If you are looking for a long term loan, banks are ideal. For a shorter period, fintech options can also be explored.
Many lenders attract clients with the lowest fixed interest rates. However, in such cases, you end up paying more out of pocket interest. It is always desirable to obtain a loan option in which interest is calculated using the diminishing balance method.
Before finalizing any loan option, you need to understand what additional costs are associated with providing a loan to individuals. Lenders usually charge a handling fee of 1-2% in the case of personal loans. Some lenders even charge a non-refundable administration fee. Therefore, it is recommended to compare the cost of loans without forgetting about these costs.
It is important to get used to financial jargon and understand the EMI calculation process. This ensures that you don’t pay more than you owe. For example, free EMI was a buzzword in the online shopping era, but is it really free? In most cases, you will be charged a processing fee which does not technically make it a free EMI.
Even with advanced EMI, you end up paying a lot more than you should. If you pay 2 EMIs up front, you are technically paying a higher interest rate than you actually negotiated.
Banks and lenders charge a foreclosure fee and a prepayment in case the borrower wants to repay his loan before the loan expires. So, if you have any plans to repay the loan early, you should compare these costs and contact the lender that offers the most flexibility in repayment, in part or in full.
When deciding what interest rate or loan options you will receive, your credit rating plays a very important role. A credit rating above 800 ensures that you are eligible for lower interest rates.