How do you take a personal loan without getting into financial mess in the future? Here are four tips.
Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters. Many of us are aware that personal loans are expensive and come with high interest rates. These loan rates can put a very high repayment burden on your home budget through high EMIs. If not managed well, you could fall into a debt trap where you would find it difficult to repay the loan. So, how do you take a personal loan without getting into financial mess in the future? Much depends on how well you take care of four factors related to personal loans. We will tell you all about them but in just a little while.
Keep the loan amount as low as possible
Money from a personal loan is not easy money. It comes with a high interest rate and has to be paid back on time. Ideally, you should be taking a loan against an existing asset like fixed deposit (FD) where the rates are lower. But just in case, you run out of options and have to take a personal loan, try to minimise the loan amount. This will ensure that your EMI remains within manageable limits.
Select the shortest possible tenure
Longer the tenure of the personal loan, higher is the cost for you in terms of total interest paid. Therefore, keep the loan tenure as short as possible. Of course, this will increase the EMI. The key is to keep a balance between a manageable EMI and shortest possible tenure, to minimise your interest cost.
Beware of charges
You need to foreclose your personal loan before the end of its tenure given its high interest rate. It makes sense to make partial prepayments of the personal loan as your income rises. Look for a lending institution that which has low or zero prepayment charges for personal loans. This will facilitate faster repayment and savings on interest charges.
Do not apply to too many lenders
Don’t apply to too many lenders for a personal loan. It could affect your credit history and eligibility for future loans. The CIBIL score that reflects your creditworthiness and is also taken into account by lenders, gets affected adversely. Instead, do a thorough research about the chances of loan approval, its cost and lenders’ service quality before applying for the loan.
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