The years 2020 and 2021 have been terrible for the economy. The coronavirus outbreak and subsequent lockdown has severely affected livelihoods. With everything closed, people struggled to meet their expenses and had to borrow money. And although credit cards are an easy option, personal loans are still preferred as they are the cheapest and are available at interest rates as low as 10.25%. If you are facing a sudden demand for cash, personal loans may be your option of choice.
It is important to research and consider all available options before securing a particular personal loan. Here are some things to keep in mind.
Today, borrowers can get a personal loan through their phone without having to leave the comfort of home. The market is flooded with options and this leads to confusion. Thorough research is advised and an online aggregation platform can be useful to ensure you don’t miss out on offers. If you are looking for a long-term loan, banks might be ideal. For a shorter period, fintech options can also be explored.
Many lenders entice customers with slightly low fixed interest rates. However, in such cases, you end up paying more interest out of pocket. It is always advisable to get a loan option where the interest is calculated using the declining balance method.
Before finalizing any loan option, you need to understand the additional fees involved in disbursing the personal loan. It is customary for lenders to charge a processing fee of 1-2% in case of a personal loan. Some lenders even charge a non-refundable administrative fee. Thus, it is advisable to compare the cost of borrowing with these fees in mind.
It is important to be familiar with the financial jargon and to understand the process of calculating the EMI. This will save you from paying more than you should. For example, no-cost EMI has been a buzzword in the age of online shopping, but is it really no-cost? In most cases, you are charged a processing fee, which technically does not make it a free IME.
Even with an advanced NDE, you end up paying way more than you should have. If you pay 2 EMIs in advance, you are technically paying a higher interest rate than you actually agreed.
Banks and lenders charge foreclosure and prepayment fees in case the borrower wants to settle his loan before the term of the loan. So, if you plan to settle the loan early, you should compare these fees and opt for the lender that offers maximum flexibility on repayments, partial or total.
In deciding what interest rate or loan options you will get, credit rating plays a very important role. A credit score above 800 will ensure you qualify for lower interest rates.
Read all the latest news, breaking news and updates on coronavirus here