Factors to Consider When Applying for Your First Personal Loan
You’ve got a plan—a vision for something big. Maybe it’s that long-dreamed-of vacation, a home improvement project or simply a way to manage an unexpected expense that life tossed your way.
You’re ready to take that step, but since it’s your first time considering a personal loan, there’s a mix of excitement and a bit of nervousness. After all, it’s a new chapter and with any big decision, it’s best to go in with open eyes. So, before you dive in, here’s a look at the key factors to consider before applying for a personal loan.
Loan Amount
Evaluate Your Needs: Think about how much you truly need and avoid the temptation to borrow more than necessary. Over-borrowing can lead to higher repayments and may impact your budget.
Lender Limits: Different lenders offer varying minimum and maximum loan amounts. So, check this to see if they align with your needs.
Affordability: Ensure the loan amount is affordable for your income and lifestyle. You want to borrow just enough to cover your needs without stretching your finances too thin.
Interest
Types of Interest Rates: Lenders typically offer fixed or floating interest rates. Fixed rates remain the same throughout the loan term, providing stable EMIs while floating rates can fluctuate with market changes, which might affect your monthly payments.
Compare Rates: Interest rates can vary significantly between lenders. Take time to shop around, as even a small difference in rate can save you a lot over the loan’s lifetime.
Annual Percentage Rate (APR): Some lenders may advertise a lower interest rate but have additional fees. The APR, which includes both the interest rate and any additional fees, gives a clearer picture of the loan’s cost.
EMI (Equated Monthly Instalment)
EMI Calculation: Your monthly EMI is determined by the loan amount, interest rate and repayment tenure. Use online EMI calculators to get an idea of your monthly payments for different loan amounts and terms.
Tenure Options: Choosing a longer loan term may reduce your EMI but will increase the total interest paid over time. A shorter term means higher monthly payments but less total interest.
Budgeting for EMIs: Make sure your EMI comfortably fits into your monthly budget. Missing or delaying EMIs can lead to penalties and negatively impact your credit score.
Processing Fees
What Are Processing Fees? Most lenders charge a one-time processing fee, which can be a percentage of the loan amount or a flat fee. It’s deducted from the loan disbursal amount, so you’ll receive a slightly lower amount than you applied for.
Fee Ranges: Processing fees vary between lenders, often ranging from 0.5% to 3% of the loan amount. Always ask for the exact amount and factor it into your budget.
Negotiate or Waive: Some lenders may waive or reduce the processing fee as part of promotions, especially if you have a strong credit history or if you’re an existing customer. It’s worth asking.
Disbursal Time
Processing Time: The time it takes to get the funds depends on the lender’s process, verification requirements and your documentation. Some lenders disburse personal loans within 24 hours, while others may take a few days.
Urgency Considerations: If you need funds quickly, look for lenders known for fast processing. Check if your lender has a specific “instant loan” feature.
Documentation Requirements: Missing or incomplete documents can delay disbursal, so have everything ready and accurate. Commonly required documents include ID proof, address proof, income proof and bank statements.
Impact on Credit Score
Hard Inquiries: Each time you apply for a loan, the lender checks your credit report, which creates a “hard inquiry”. Too many hard inquiries in a short period can lower your credit score temporarily.
Repayment History: Timely EMI payments help build a positive credit history, while missed payments can hurt your score. Make sure you have a repayment plan in place.
Debt-to-Income Ratio: Taking on a personal loan increases your debt load, which can impact your credit utilisation ratio. Lenders look at your debt-to-income ratio to evaluate your capacity to manage additional loans in the future.
Conclusion
A personal loan can be a straightforward solution when you know what to look for and have the right support. With a trusted lender, the journey feels simpler, and you can focus on what matters most, which is achieving your goals. Unity Small Finance Bank is here to make the process smooth, secure and tailored just for you.
