A personal loan is a loan that you can get relatively easily from a bank or a non-banking financial corporation (NBFC). We all think about taking a personal loan when we are in financial difficulty, but few think about the fees behind it or the high interest rates. Many people have many concerns about a personal loan. In this article, you can read in detail about the 7 things that you must definitely remember before taking a personal loan.

Reason for the loan:

One important thing to think about is that the purpose of the loan should be genuine. For example, borrowing money to get married, renovate your house, or for an emergency is a legitimate reason. However, borrowing money for something that can be avoided, such as a vacation or buying something expensive, is not advisable.

Interest rate:Rate of interest

Another important factor to consider is that each lender differs in interest rates. The lower the interest rate, the better for you. Therefore, take a loan only after comparing the interest rates charged by different lenders.

EMI Rate:

The monthly installment you have to pay to repay the loan should be within your budget. It is always advisable that your
monthly installment falls within 50 percent of your monthly income.

Processing Charges:

Make sure that the processing charges are not excessive. A small percentage of processing charges is not a problem, but some lenders charge up to 5 percent of the loan amount as processing charges. You should be careful about that.

Loan Insurance:

Some banks encourage borrowers to take loan insurance, but you should understand that this will increase the EMI amount. Therefore, you should opt for it only if you can afford the additional loan burden. Otherwise, you should forgo insurance no matter how stressful it is.

Reputation of Banks:

Another factor to consider is the reputation of the lender. You should avoid choosing a lender with a bad reputation in the market.

Prepayment penalty:

The most important thing to consider is that you should ensure that the bank does not spend a large amount of money on your intention to repay the loan early. Also, it is worth mentioning here that the RBI has recently announced that the lender should give the borrowers who have opted for a floating interest rate the option to switch to a fixed interest rate at the time of interest rate revision.

Amount to borrow:

Depending on your eligibility, you may have the option to get a higher loan, but it is always advisable to borrow only what you need. Before getting a loan, make sure to assess the purpose of the personal loan and borrow an amount that is in line with your actual needs.

Personal loans are a helpful financial tool to deal with unexpected financial needs or to achieve specific financial goals. But before that, go ahead with the loan only after considering the above points carefully.