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Life can throw a curveball at you sometimes. At such difficult junctures, a personal loan can come in handy. Yet, despite a dire financial need, you must be cautious before taking a personal loan.
What exactly are personal loans?
Unlike car or home loans, that require a collateral, personal loans are unsecured loans. This means that the bank is taking a higher risk when they give personal loans. To offset this risk, they provide the loans at much higher interest rates.
Keep these ten factors in mind if you are thinking about taking a personal loan:
Personal loans may seem like the best solution for your emergency cash needs, but they have short repayment tenures and high-interest rates. This means a higher monthly EMI. So, consider all your other payments and requirements before availing a personal loan.
Since personal loans are easy to avail, there’s a tendency to take more than your current requirement. This is a mistake for which you will literally have to pay heavily, and so you must limit the amount to what you need.
Try to choose other cheaper options like loans against deposits shares or gold. These loans are secured and have lower interest rates when compared to personal loan rates.
With peer pressure and societal demands, you may be tempted to take bank loans for buying the latest Smartphone or for travel. Doing so will affect your financial goals. So, stay away from personal loans until the situation is dire.
Banks are always looking to woo credit-worthy borrowers. So, sharpen your negotiation skills and you could end up with an interest rate lower than the norm. Even if it's just a slight reduction, it could help to lighten your overall financial burden.
Make sure you read the loan document thoroughly before signing. Look for the fine print. This will help you stay on guard. Don't just blindly trust the details provided by the banking personnel, as they may not be aware of all the details.
There's always a possibility that your financial situation may take a turn for the worse in the future. A medical emergency or loss of job may lead to an inability to pay back the loan. So, it pays to be aware of what happens when you can't repay the loan.
Defaulting on your loan leads to serious consequences. Being conscious of the consequences can make you a disciplined borrower and help you pay your loan on time.
Besides an impending legal struggle, loan defaults take a toll on your credit history too. Even if you manage to pay the loan later on, it reflects poorly on your credit history. A good credit score is essential to negotiate loan rates later on.
The most important mantra to remember is that a personal loan should only be taken when in absolute need.
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