A personal loan is a great option in times of financial need. That is the reason why many people apply for instant personal loans in times of emergencies. When you are in urgent need of funds, you can’t afford to wait for days to get the loan sanctioned. You might want to make use of your emergency fund, as it is supposed to cushion you from such exigencies, even that might fall short at times. Well, the only thing that can help you through tough times is an emergency personal loan. However, there are a few things to consider while availing a personal loan to tackle financial emergencies.
- Personal Loan Amount
When applying for a personal loan, the amount will primarily depend on the borrower’s income, loan tenure, the loan type etc. Many banks and financial institutions have started offering loans over and above the credit limit. The loan amount in case of regular personal loans can range between Rs 50,000 and Rs 40 lakh. Lenders will try to offer you a loan amount that can be higher than what you require. However, you should evaluate your financial requirements properly to evaluate how much funds you need as this amount has to be repaid at some point.
- Loan Processing Time
As financial emergencies require quick access to funds, loans requiring longer turnaround time for disbursals may not prove to be much useful. Many lending institutions have a quick verification process and minimal documents required for personal loan. However, some lenders claim to disburse personal loans within the same day of personal loan application. You can look for lenders that offer instant personal loans at attractive interest rates and additional offers on loans.
- Interest Rate
The interest rates charged on your personal loan will primarily depend on the type of loan you opt for and your credit profile. Usually, secured loans have lower interest rates than the insecure ones. Similarly, individuals that have a good credit score and are employed with reputed corporates have higher chances of availing loans at lower interest rates. When applying for a personal loan, always shop for the lowest interest rate available online. A small difference in interest rates would mean less amount is to be paid and a significant difference in loan costs. Remember that banks and lending institutions decide your interest rate based on several other factors like your monthly income, age, your credit history and so on.
- Processing Charges
One of the important changes in the processing fee which is between 1-3 percent of the loan, at times with a maximum and minimum limit. Sometimes banks and NBFCs have offers where they have discounts on their processing fees. Another charge to consider is the prepayment penalty which is also calculated as a percentage of the outstanding amount. But before you finalize your lender, compare the processing charges of all the lending institutions available in the market, as these charges can cost a substantial amount on the loan. Ensure to add the processing fee to interest costs to derive the total cost of the personal loan.
- Loan Tenure
Personal Loan tenure plays a major role in determining your EMI and overall interest charged on the loan. Longer tenure would mean lower EMI but would lead to higher interest cost. Personal loans and loan against credit cards usually come with loan tenures of 1-5 years. The total portion of your income that is paid as EMIs should not exceed 40 per cent of your total take-home income. Here, deciding on the loan tenure also plays an important role. A shorter tenure means a higher EMI and vice versa, but a longer tenure means paying higher interest rates on the amount. Choose your loan tenure primarily on the basis of your repayment capacity as any default in these loans would cost you hefty penal charges while reducing your credit score and future loan eligibility. Also, factor in your monthly contributions to crucial financial goals as ignoring them might force you to avail of a costly loan option.
Choose your credit option primarily on the basis of your processing turnaround time, your repayment capacity, overall credit cost and your funding requirements. Personal loans can be useful when used in the right situation, especially for medical or financial emergencies. You can use the loan amount to cover all your financial requirements with ease. Moreover, signing the loan agreement without understanding it can lead to serious issues in the future. Make sure you sign only when you are confident that you know all the terms and conditions well. You can use the Finserv MARKETS app to apply for personal loan in quick and easy steps.