A personal loan is unarguably the best financial tool to use when you are having a cash crunch. The promise of a simpler, hassle-free loan process has lured many into applying for a personal loan. Given the technological advances in the financial sector, it is now easy to approve and disburse a personal loan in no time. However, there are some rules you should follow if you are considering a personal loan. This includes the following:
1. Don’t bite more than you can chew
In today’s financial market, it has become easier for the borrower to borrow money. But if you don’t have a strong motive to borrow, just don’t. However, if you must, then borrow just what you need.
Getting a large personal loan may excite you in the beginning. But if you are struggling to pay it off, then this excitement can easily turn into a nightmare.
Take a personal loan that you can comfortably repay. Ideally, your personal loan EMI should not be more than 10% of your salary. So, before applying for a personal loan, it makes perfect sense to calculate the EMI with the help of MoneyTap’s personal loan EMI calculator. The EMI calculator will help you decide how much loan amount you can afford.
2. Avoid longer loan tenure
A longer loan tenure gives you the benefits of lower EMIs. But in the end, you end up paying a lot more than what you had borrowed because of the interest that piles up over time.
However, if you choose a shorter loan tenure, your EMIs will be more but the loan will be paid in a shorter time. Thus, you tend to pay less amount in interest.
3. Make repayments responsibly and timely
Financial indiscipline can attract penalties and also ruin your chances of getting qualified for future loans.
A late repayment directly affects your CIBIL score. So, if you want to keep your good CIBIL score intact, pay your EMIs on time.
4. Read and understand the fine print
As a rule, you should read the loan terms and policies so that you are aware of what you are getting into.
If you sign the loan agreement without actually reading it and understanding it, you may be in for a lot of surprises. Unexpected charges may just show up and you may not be able to do anything about it because your loan agreement says that you have signed for it.
5. Prepay as frequently as you can
You should not leave any opportunity to prepay your personal loan whenever you can. So, if you have got a bonus at work, or extra cash to spare, pay it towards your loan. Prepaying a personal loan saves a significant amount on the interest. Moreover, the earlier to pay your personal loan, the faster you’ll be debt free. It is essential that you follow these rules so that you are able to manage your finances well and increase your credit score for future loan prospects.