Millions of people apply for personal loans around the globe for a multitude of reasons. We seek loans to acquire a property, pay for unexpected expenses or simply, to improve our lifestyle. Many end up getting bankrupt for not being able to repay the amount acquired on heavy interest. Few are aware of the fact that a loan agreement does not just include loan, but also add-ons, often making it almost impossible for the borrower to repay.
One of the solutions to this is small loans, such as payday loans that are availed because these are less risky and provide added benefits. Before you apply for a personal loan, you need to be aware of the following important factors.
1.Identify The Type of Loan: If you’re planning to borrow a personal loan, you need to identify the right type of funds to borrow. Generally, personal loans are available in two forms; secured and unsecured. Unsecured personal loans are not bound to be provided against any collateral but are highly dependent on the lender’s conditions.
Before the lender supports you with the personal loan, he or she looks at your financial history and then decides whether or not they should sanction the loan. If you do not have a strong financial history, then you may avail of the services of a person who does and has a reliable financial position. This loan is riskier in the sense that the lender can recover their investment by selling the collateral in case things do not go well.
2. Criteria to Qualify: When it comes to investment and banking, certain rules and regulations have to be followed as a criterion. Similar is the case of borrowing a personal loan. The first and foremost factor is to find out whether you are qualified to borrow the loan. The general criteria are that the borrowing candidate must be over 18 years of age, has evidence of regular income and strong financial support to be able to survive even without being employed. It is advisable to only approach a lender if you have all of these things in place, or else you might get in trouble.
3. Income Status and Payables: Income status and payables is an obvious thing to decide before you go ahead with the borrowing. Think about what is the best method to repay the loan taken? What are the pros and cons of choosing a certain method, and whether you will be paying it back on a weekly, fortnightly or monthly basis? When deciding your options, remember to know all the conditions of the lender that fall in your favor, so that you make the most of the agreement.
4. Add-on and Interest: The amount of the actual loan and the interest may often be confusing. The amount you take as a personal loan has to be repaid with a certain amount of interest. Since many people are not aware of the concept of interest, they end up paying much more than they should. To avoid this, you should compare the interest rate with other personal loan providers and make a sound decision. This is because different lenders charge a different percentage of interest and have different timelines for repayment. Choose an option that offers the right interest rate and repayment schedule.
5. Comparison between Different Loans: According to an evaluation, banks and other lenders offer a secured loan on eight to 10 percent interest and unsecured personal loans on 12 to 26 percent. Again, this is because unsecured personal loans are riskier. When it comes to the repayment schedule, secured personal loans are more often seen to be long term as opposed to the unsecured ones. If the loan is not paid on time, a huge amount of interest is charged to reduce the uncertainty of loss. Make sure that your comparison is not bound to just the amount of the interest; there are some other things to be considered, such as payment chargers and loan processing fee, which may vary from lender to lender.
6. Lenders to Approach at a Time: Usually, people have the practice to apply for a personal loan with multiple banks, but it reduces the chances of earning the funds on time. Let’s understand how this happens. When a person applies for a personal loan, the bank or the lender is bound to collect their financial history and credit report. Such reports are treated as hard inquiries at the Credit Report Bureau, which reduces the credit score by a few points. Multiple lenders tend to reduce the score, eventually reducing the chances of receiving the loan on time. So, always apply with a good credit score to the least number of banks.
7. The Employment Factor: Many of us are not familiar that the number of jobs that we have switched in the past also affects the successful or immediate loan borrowing. People who are frequent in switching their jobs are considered to be unstable in their professional life, eventually giving a perception of a difficult repayment. This eventually leads the lender to conclude that it is better not to sanction the loan to a certain applicant. You need to understand that if you want a personal loan, then the stability of your professional career also plays a role in making it possible.
Out of multiple personal loans, a payday loan is less risky as it does not allow huge interest or add-ons, and is repaid in a small amount of time. If you need cash, there are multiple options for borrowing the loan, but you need to figure out how you will manage the payment terms and maintain the credit score. Will it be feasible for you to repay the loan in the given time or will it be much more difficult? If you think you are not capable of repaying the loan, then it is better to gain a strong financial status before deciding to approach a lender for funds.