Things to avoid with your Personal Loan

The necessity of reason being avoided, the absence of a security to be provided and the quick process of disbursement are some of the few things that make a personal loan very likable in today’s world. Be it to get out of a huge debt of high interest rates or to finance an event or item you’ve long been waiting for, personal loans come to the rescue. Though slightly easier to avail, even credit cards don’t compare to how personal loans can be utilized. But as is with most credit facilities, personal loans can also make your balance sheets a financial wreck if you are not careful with them. Let’s take a look at the absolute no’s that come to play when it is about dealing with personal loans.

More is Good – Not Necessarily

Though compared to credit cards that have an annual interest rate of around 24% to 40% per annum, personal loan could come at an interest rate of a meager 13% to 16% per annum, they are still a form of credit and need to be repaid. Opting for more than one personal loan at a time could seriously damage your monthly and annual finances. It may not apparent from the surface, but since most personal loans do not have a prepayment option, cutting down on the interest also becomes difficult. Only as a last resort, one should turn to personal loans, if there are other debts of higher interest rates that are eating into your savings and making your financial planning look like a rundown mill that’s due for demolition.

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Living within your Means

So, you made a bad call sometime back in your financial life and now need to set things straight. A good personal loan with your preferred interest rates could help you sort out the chinks in your balance sheet, but at the same time, greed is bad. Taking too much of a loan could land you in trouble with the repayments, especially if your existing monthly expenses are high. The analogy that could be provided is you don’t use a missile to destroy pests on your flower bed. Apply for a loan whose EMI is less than 30-40% of your monthly income minus the existing expenses. No one is free from financial liabilities, and you do not want to add another to your life, especially of you can avoid it. Pre-approved loan offers are good, but most banks offer them without calculating your monthly expenses. You are your best financial manager, not your bank.

Reading between the Lines

When a personal loan is offered, all that actually swims in front of your eyes is the amount that will be credited to your bank account. Wipe your eyes clear and read the terms and conditions of the loan agreement carefully. There will be mentions of some terms that you might not agree to, and if and when things do take a turn for the worse, it won’t be the bank that takes the fall, rather it would be your bank balance. Disputes and misunderstandings between you and the bank could lead you into a tight spot because of the same terms that you ignored or failed to comprehend. Get the facts right about pre-closure charges, prepayment options and the like. Remember the adage, fools rush in where angels fear to tread. You wouldn’t want to be the former, no matter what the contingency was which forced your hand to sign on the loan agreement.

Taking the Long Road

A long repayment tenure might be very appealing because consequently, your EMI amount also reduces drastically. Then there’s the usual presumption that if you can pay off your loan within a year, you can definitely do so within 2 years or 3 years. Though the presumption is good, you ignore the fact that you are going to pay interest on that loan amount for an extended period. The amount you end up paying in a year will be definitely outweighed by the amount that you would end up paying for 2 years or 3 years. Whenever possible, choose the shortest route to a debt free life. Even if you have to forego that romantic dinner the next month or that dazzling timepiece you saw while driving home, cut some corners when it comes to spending and choose a shorter tenure within which you can pay off the loan completely. Your wallet and bank balance will thank you for that.

Weighing your Options

Personal loans are available on the market a dime a dozen and every lender acts as the best vendor for their wares. In addition to them, you also have many different loan options available against securities like fixed deposits, gold jewellery, LIC policies and the like. A secured loan mostly offers lower rates of interest than an unsecured loan and has better options of repayment. So, if you have an option to go for any other kind of loan that works out better in the long run, avoid the personal loan road by all means. For example, if you have an existing home loan, banks can offer you a top up loan that could help you if you are in a wee bit of a financial fix.

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Important Points to Consider Before Applying for a Travel Loan

Heading out on exotic vacations with family and friends is no longer one of those un affordable luxuries. Thanks to personal loans, it is now easy as ever for you to make that trip to the destination of your dreams. Flight reservations, luxury accommodation, exotic meals, shopping and more are among the expenses you will incur when on vacation, and these expenses can be covered with relative ease with a personal travel loan. Banks and financial institutions around the country have made available travel loans so you can escape the hustle and bustle of city life. However, few things must be considered before you apply for a personal loan to realize your travel dreams.

Credit Score: A customer’s credit score is crucial when a financial lender determined his / her eligibility for credit. If you have a high credit score, you will gain access to personal loans at attractive interest rates. On the other hand, a poor credit score can result in personal loans with relatively high rates of interest or even rejection of your application at worst.

Financial Security: Since your travel is more of a luxury than a necessity, you must ask ascertain whether you can afford to take out a loan and make repayments towards the same within the specified time frame. Your income, expenditures, and savings must be carefully analysed to determine whether or not you can make EMI payments without much restraint. Other factors such as outstanding debts and job stability must also be taken into consideration to ensure that the travel loan does not turn into a monkey on your back.

Secured or Unsecured: When applying for a travel loan, you will have to choose between secured and unsecured. Secured loans require you to pledge an asset as collateral, while unsecured loans need no guarantee but will charge you a higher rate of interest. Secured loans are easier to avail even if your credit score is low as lenders are more likely to lend to individuals who provide collateral.

Interest Rates: Personal loans are usually granted at high interest rates, and you must choose between variable- or fixed-rate loans. The rate of interest remains the same during the tenure of the loan in case of fixed, and varies depending on the cash rate in case of variable-rate loans. A comprehensive comparison of lenders and rates will help you better understand which loan best fits your bill.

Ability to Repay: Since personal loans are usually availed for relatively smaller sums of money, repayment is usually quite simple. If you have the income and confidence to repay the amount borrowed, take a loan for a short tenure as you will lower interest payments. Make sure that you have analysed your income and job security to ensure that you can in fact repay the loan on time.

If you are certain about repaying the amount borrowed without adding to your financial liabilities, a travel loan is the ideal investment for a good time and peace of mind.