Quick cash loans have emerged as the most preferred financing tool that caters to the diverse needs of an individual. Today, availing a cash loan has become easier than ever. With dedicated online loan apps, you can easily avail finance of up to Rs. 1.5 lakh in just a few taps. But before you apply for an instant loan, you must know the commitments that you make when you avail a loan.
When availing a loan, you must have detailed information related to the advance. This helps you in making a suitable borrowing decision aligned with your funding needs and financial affordability.
Read on to discover the most important details that you must know before availing a personal loan.
Important Things to Know Before Availing a Personal Loan
A personal loan is no doubt a very handy tool that helps you meet your financial gaps. But it is a big financial commitment. Once you avail the loan, you promise the lender to repay the loan in monthly instalments. This will drain a portion of your monthly budget until you complete the loan tenure. That’s why it is very important to estimate your loan EMI affordability before availing the loan. In addition to that, there are several fees, charges and penalties that are mentioned in the fine print which you may easily miss. But it is very crucial to consider all these aspects before availing the loan.
Here are a few facts about personal loans that you must know -
Your credit history critically impacts the terms of your personal loan
Every individual that has availed a loan or used a credit card is given a credit score assigned by a registered bureau. This credit score reflects your past borrowing habits, repayment attitude and other details. Lenders consider this credit score to assess the risk associated with your profile.
When you apply for a cash loan, your lender checks your credit score. Depending on your credit score, the lender determines the interest rate and other crucial factors. It is thus only pertinent that you check your credit history and score, and work towards improving it for faster loan approval.
A personal loan is an unsecured advance
Before borrowing, you must also know that personal loans are unsecured advances. They are collateral-free. Lenders do not seek any collateral or guarantee against these loans. When availing the cash loan, you must meet the eligibility criteria set by the chosen lender.
Most lenders reject your loan application if you fail to meet the eligibility criteria set by them. That’s why, it is very important to go through these criteria, mentioned on the lender website or on the personal loan app. Apply with the lender only if you meet their eligibility criteria.
Online loan applications are likely to get fast approval
When choosing the mode of application, you must know that online loans are likely to get faster approval than offline loans. It is because they come with minimal processing steps that are powered by AI and machine learning. This makes the entire process very fast.
Also, the documentation is minimal, which further reduces the time taken for processing these loans. Typically, when availing the loan via online loan apps, an eligible individual can expect approval for the advance within a few minutes. The loan amount is disbursed within 24 to 48 hours.
All aspects of your loan affordability must be considered before borrowing
When availing the loan, you must also consider all aspects related to your loan affordability. It is because the feasibility of the advance ultimately depends on your affordability.
Factors related to the affordability of this cash loan can include loan amount, tenure selected, interest rate, total interest pay out, EMI etc. Other costs and fees related to the loan also impact the overall affordability of this advance. Make sure to do these calculations before applying for the loan. You can use an online loan EMI calculator available on the online loan apps to make the right calculations.
You should know about the floating and fixed interest rates
When you apply for a personal loan, you have the option to choose between floating interest rate and fixed interest rate. Both of these are different systems in which your interest rate will be levied.
A fixed interest rate is a bit higher than a floating interest rate. But with fixed interest rate you will get a fixed EMI every month. However, when you choose a floating interest rate, your monthly EMI will fluctuate as per the market conditions.
Foreclosure can attract additional charges
Many times, people tend to apply for a longer loan tenure based on their eligibility and plan to close the loan account in advance. While there is nothing wrong with this, but foreclosure may attract additional charges. You must make sure that these charges are lower than the remaining interest pay out.
Also, it is important to note that you can avoid foreclosure charges by choosing floating interest rate on the loan. You can also negotiate with your lender at the time of loan offer to waive off the foreclosure charges.
You can opt for loan transfer
If you are not happy with your current lender’s way of business or you are serving a higher interest rate than the market rates, then you can opt for a loan transfer. A loan transfer also have additional fees, but it can help you save on the interest rates if you do the calculations right.
Make sure to check if your lender offers the facility of loan transfer and what are the charges they levy on it. Ideally, it is beneficial to serve the entire loan tenure with one lender, so try to negotiate the terms and make informed decisions regarding the loan.
Conclusion
A cash loan is a very handy tool. But using these debt tools without proper knowledge can drill a hole in your pocket. You end up paying much more than the amount you borrowed. Ideally, this should never be the case.
You should always aim to avail a loan with the lowest possible interest and charges. Download an online loan app to know more about the current offers on instant loans.
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