At the outset, personal loans, though a tool to tide over a financial crisis, should ideally be avoided. In times of a cash crunch, personal loans can help meet an unforeseen financial situation. Whether there is an unexpected expense or some renovation work at home that needs immediate attention, a personal loan can come in handy. However, personal loans should only be taken when you are in urgent need of money as they come with a hefty interest rate. Here are 5 things you should check before availing a personal loan.
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Eligibility | Check your loan eligibility through the personal loan eligibility calculator provided by a bank or a financial institution. Your personal loan eligibility will depend on your income, repaying capacity, credit score etc. Depending on your credit score and other factors, the loan amount and duration of repayment can vary between financial institutions.
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Repayment capacity | Before availing a loan, it is always advisable to check whether you will be able to meet timely EMIs. Although banks conduct repayment capacity profilings at the time of granting loan by checking your income sources, ensure that high EMIs in personal loans don’t put pressure on your resources, later.
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Pre-payment penalties | Charging a fee for early repayment of a loan is common practice as lenders have to let go the interest they expect to earn due to early repayment. Hence, it is advisable to pick a loan with the lowest forecloser charges. Moneycontrol advises you to foreclose a personal loan, if you can. It’s a good habit to erase debt by foreclosing your more expensive loans, starting with personal loans.
Interest rates | The interest rate is around 15-18 percent depending on your credit score. One should compare rates at different financial institutions.
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Tenure | Personal loan is a short to medium term unsecured loan. Banks generally offer personal loan from minimum 1 year to maximum 5 years tenure.
