What is a Personal Loan?

Before you apply for a personal loan, you must understand what a personal loan is first. The personal loan is an “unsecured” loan, where you do not have to pledge any collateral to get the loan amount.

For this reason, it is more expensive than another sort of loans however is apt to meet your urgent money requirements for which you don’t want to break into your savings or stop any of your investments.

Personal loans provide you with an option to pay off your huge expenses in easy monthly installments for a specific period, which is unlike credit cards which is a revolving loan which keeps on building up every month as you don’t pay it off base on compounding interest.

Therefore before availing a personal loan you must ask yourself “Do i really need a personal loan?”

Interest Rates on Personal Loans

A good credit history can help lower your personal loan interest. Also, if you want to pledge collateral then also it can help you further lower your personal loan interest.

Personal loans are often cheaper than credit cards. One must research well before taking a personal loan. There is a various option available in the market at varying interest rates.

You should look at the market to get the least expensive and safe personal loan for yourself.

Benefits of Personal Loans

Unlike home loans and car loans, personal loans come with a shorter repayment period like 24 months or 36 months.

You tend to get all lumpsum money at one go and then you must pay the principal plus interest in regular monthly installments. Try to get the loan at fixed rates, sometimes, these may come with variable rates however it has its own pros and cons.

If variable rate declines then you need to pay a lesser amount in interest for that year however if it increases then your payable amount also increases.

Caution you must consider

Personal loans are not an answer to all your needs. They must be taken for unexpected and urgent needs like medical expenses, or an upcoming holiday plan for your family, or your child’s education expenses or home renovation or any kind of repair bill for your car, etc.

They are easily available and do not require any form of collatel. The only thing they would check is your credit score and your repayment ability.

Planning is the key

One must plan the repayments and what extra burden it would be in your monthly credits before taking a personal loan. If you can manage to payoff the loan amount easily from your monthly salary credit in the next two to three years, then you can take it.

But it surely is an extra burden on your pocket and for a period of a few years, you won’t realize that you earn that much extra. It is advised that one must discuss with his financial advisor before taking any sort of loans as they can investigate your overall situation and advice likewise.

You also need to check that any additional expenses are coming up in coming years and how secure is your salary at workplace to help your payoff your debt once you have taken it.

How to get cheaper Personal Loans?

Also check, whether your lender has an option for you to pre-pay the loan or is there any kind of pre-payment penalty associated.

One must also consider the cost of taking a loan from a lender as some charge a hefty application fee for your personal loans which could be an extra burden for you.

Don’t take the overall amount as personal loan as it comes at a cost, try to meet as much of your requirement form your savings and then ask for extra amount as your loan amount.