We cannot predict when and in what form our financial needs will arise. Sometimes, we might need more funds when we need them the most.
In such situations, many people opt for personal loans. However, it’s crucial for beginners to carefully consider a few factors before taking out a personal loan. Let’s explore these considerations.
Common Reasons for Taking a Personal Loan
Marriage: Weddings can be pretty expensive in India. Many parents save for their children’s marriages long in advance, but sometimes the savings are too little. In such cases, taking a personal loan for marriage expenses can be a reasonable option.
Purchasing Expensive Items: Occasionally, you may want to buy expensive gifts for your loved ones, especially for occasions like wedding anniversaries and birthdays. In these instances, it’s acceptable to consider a personal loan.
Holiday Trips: Many individuals plan vacations with their families to spend quality time together. To make these trips possible, one can take a personal loan to fulfill their travel aspirations.
Home Renovation: While some people take home loans to build or renovate their houses, if the amount needs to be more, a personal loan can help cover the additional expenses.
Emergency Situations: Personal loans can also be helpful during emergencies, such as when a family member requires hospitalization due to health issues or other urgent matters.
How to Choose a Lender
Choosing the right lender for a personal loan is essential. You can find personal loans through banks, non-banking financial institutions (NBFCs), and loan apps. Here are some tips to help you decide:
Banks: Generally, obtaining a personal loan from a bank is considered safer. However, comparing different banks’ interest rates is wise before deciding.
Non-Banking Financial Institutions (NBFCs): If you cannot get a personal loan from a bank, you can approach an NBFC. Keep in mind that NBFCs typically charge higher interest rates than banks.
Loan Apps: Besides banks and NBFCs, personal loans can be obtained through various loan apps.
RBI Recognition: Ensure that the bank, NBFC, or app providing the loan is recognized by the Reserve Bank of India (RBI).
Using an EMI Calculator
Many people repay personal loans through Equated Monthly Installments (EMIs). Before taking a loan, it’s advisable to use an EMI calculator to determine your monthly payment. You can determine how much you’ll owe monthly by inputting the loan amount, interest rate, and tenure.
For example, if you take a personal loan of ₹10 lakh at a 10% interest rate for 3 years, your monthly EMI will be ₹32,267.
Considerations Before Taking a Personal Loan
Before finalizing a personal loan, pay attention to the following factors:
Interest Rate: Assess the interest rates from various banks. Choosing a personal loan from the bank offering the lowest interest rate is best.
Processing Fee: As the borrower, you will be responsible for paying the processing fee, which lenders charge before granting a loan. If the fee is high, consider options from other banks.
It’s generally not advisable to take a personal loan from obscure lenders. Opt for loans from well-recognized banks or NBFCs, and exercise caution when using fintech lending apps.