No two loans are the same. With hundreds of products on the market, you need to find a personal loan that suits your individual financial needs. Before you sign on the dotted line, you should have a clear answer in mind to questions like: why are you getting the loan? What is your repayment capacity? And what type of personal loan do you want to take out?
What Type of Loan Do You Want?
With so many different personal loan types, the first question that needs addressing is what type of loan do you want?
An unsecured loan means you do not need to provide any assets as collateral. These loans are generally safer as the lender will not be able to seize assets if you fall behind on your payments. However, because these types of loans pose a larger risk to the lender, the interest rate is often higher than for a secured loan.
A secured loan is a loan where the borrower provides an asset as collateral. This asset could be a car or a property, it is generally a high-value item. If the borrower fails to make repayments on time and defaults on the debt, the lender can sell the asset to recover their debt.
What is Your Repayment Capacity?
One of the most important things to consider when taking out a personal loan is how much you are able to pay back. Your loan will likely ask for equated monthly installments (EMIs). These are fixed monthly installments which you will make to the lender over the course of the loan period until you have repaid the balance with the interest accumulated.
Use a personal loan EMI calculator to determine how much your current budget allows you to borrow and repay in fixed monthly installments.
The Term of Your Loan
How long will you need the money for? Coming up with an accurate answer to this question is important for securing the best loan for you. Many borrowers take out a longer loan, not because they need to but because this allows them to make smaller monthly repayments.
However, what is often overlooked is that in doing so, they are paying more for the loan. The longer the loan, generally the more expensive it is because you are making payments for longer. Pinpoint exactly how long it will take you to pay back the loan and opt for a personal loan product with a repayment plan that closely matches that period of time.
Additional Fees and Charges
When you are comparing loan products and deciding which product is better suited to your financial needs, it pays to consider all the additional fees and charges that may be incurred as well as the interest rate. Many lenders offer an enticingly low rate of interest, only to sting lenders later with hidden charges and fees. Check the small print and ask the question to ensure you really are getting the best deal on your personal loan.
Ease of Payments
Many loan providers now offer online portals for their customers to make fast payments. However, this is not standard industry wide. You don’t want your loan repayments to become a time-consuming chore. Ensure your lender has an efficient, accessible way to make payments and check your outstanding balance.