5 Important Things To Know Before You Apply For Personal Loan

Personal Loans

Personal loans are a type of unsecured loans. Unlike the other loans such as the gold loan or home loan, there is no security for personal loans. In home loan or gold loan, the house or your ornaments serve as a security for any collateral damage. Thus the banks are more insured in sanctioning secured loans. However, it is not very easy for every individual to apply for a home loan or gold loan. The amount which is required as a loan can be small in nature. Personal loans were initially designed for those customers who require more for a short duration of time without any giving any security. The amount sanctioned in the personal loan is small and there is no question of asking the person about the purpose of the loan.

Thus personal loans are preferred by those individuals who want the small sum of money for their personal purpose. If you are stuck in with some expenses or there is an acute shortage of funds then a personal loan from Private Finance in Delhi or any other city is the best remedy. Personal loans are best suited for unprecedented expenses such as marriage ceremonies or family functions. These loans can also be taken for educational purposes or to pay the lender. The banks have become quite aware in and cautious in granting the personal loans. The recent cases of money laundering and scams have made the banks to harden their rules and regulations.

The process of applying for a loan has not been that simple as it was earlier. The banks have become more vigilant in granting the loans and do not sanction loans easily. There are many things which as a consumer or a borrower you should be aware of about the personal loans.

1. Interest Rate May Vary

The personal loans which are sanctioned by the banks are a form of unsecured loan. These loans are granted on compound interest whose rate may vary as per the market conditions. Thus there is no static interest rate over the personal loan. As per the economic and market conditions, the rates may vary. Though the fluctuation in rates is as per the base points set the reserve bank but even a slight change of a few decimals can increase or decrease your easy monthly instalments.

2. Credit Score

The credit score of an individual is very important when applying for the personal loan. The banks give special priority to the customers who approach them with better credit score. A credit score is actually a record of your assets and past economic records. It tells about the capacity of an individual to repay the loans and any past records of the individual. On the basis of the credit score, a bank or financial institution decides whether the loan has to be sanctioned or not. Thus maintain a good credit score is very important for any individual.

3. Not Long-term Solution

While personal loans are good for a short-term period but one cannot depend upon it for a long-term solution. The short term loans were designed for an immediate need of money which is unprecedented in nature. The repaying period is also short and the high-interest rate is charged. In comparison to this, the home loan or secured loans have a longer duration of repayment. The interest rate charged over the secured loan is also very low.

4. Many Options Available

It is not necessary that when you need immediate cash you have to approach the banks. As the market is increasing, many new firms and business are entering. These firms or financial institutions are ready to give loan with less paperwork and technical formalities. The loans given by the banks can have a long process which requires a lot of paperwork and time. A person who needs immediate cash cannot really rely on the banks. Though the public sector banks have improved their services and are working to provide a better experience there are still some steps that need to be implemented. The private financial institutions provide exclusive services which are time bound and most of the formalities are looked by them.

5. Beware of Extra Charges

The people who are applying for a personal loan for the first time should be aware of the hidden charges or extra amount charged. There are many hidden charges which are charged by the banks and financial institutions. These charges are in the name of the processing fee, late fee, legal work and additional aid. There are additional benefits like insurance policy or delay accounts which are associated with the personal loan. These services are offered as associated benefits but are charged behind the curtains. Thus you should be aware of the hidden charges. Also,  ask for the penalty charges for the bank beforehand. The penalty charges are said to be nominal at first but later high rates are charged by the banks and financial institutions.