How To Make Sure You Can Afford a Personal Loan
5 min read | 5 months ago
Do you want to apply for personal loans online anytime soon? It is okay if you are looking to use the funds to cover immediate or pressing expenses. However, can you afford the personal loan that you are applying for? It is a question that all borrowers should ask themselves before they complete the application process. Here is a guide to personal loan affordability and some crucial aspects worth remembering.
Calculate Total Loan Cost Including Interest
You may apply for online loans for travel, home renovations, medical expenses, or any other purpose. Before you do so, calculate the total cost. It includes the principal amount (the sum you are applying for) and interest. Compare interest rates across banks and financial institutions and then apply. Calculate the total loan outgo over your preferred tenure. It will help you work out the total cost of the loan and your monthly EMI.
Evaluate Monthly Budget for Loan Repayments
Once you have checked the interest rates and other conditions for personal loans online, it is time to evaluate your monthly budget. List your total monthly costs and deduct them from your income (in-hand). The resultant figure will be your disposable income. It is the amount that you can afford to spend on loan repayments every month. Match it to the monthly EMI for your desired loan amount to determine your repayment ability.
Consider Emergency Funds and Unforeseen Expenses
Now that you have a clear picture of the amount you can set aside for repayments, it is important to do another calculation. Many sudden or unforeseen expenses may arise in the future. These include car or home repairs and other costs that require immediate payments. Deduct a specific portion of your disposable income to cover these costs. It will give you a safety net for the future without hindering your ability to repay the loan.
Choose A Loan Term and Amount That Fits Your Budget
The final step is to select a loan amount and tenure that fits your budget. Consider how much you require and apply for the same without over-borrowing. For example, taking a little more than your requirement is helpful when you have to spend on medical costs. Conversely, apply for an amount equal to your total cost when taking a personal loan for travel. Account for additional loan fees as well. The loan tenure matters a lot since it impacts your monthly EMI. Choose a tenure that helps you comfortably repay the loan every month. Remember that a longer tenure comes with higher costs and vice versa.
Conclusion
These are some of the core aspects to remember while determining whether you can afford a personal loan. Determining loan affordability is very important in the current scenario. To cite an instance, reports from CIBIL have already shown how NPAs for smaller loans (less than Rs. 50,000) went up to 5.4% as of June last year. It indicates that many borrowers have been unable to repay their personal loans in India. To avoid falling into the same trap, determine your repayment ability in advance.
FAQs
1. Can I take a personal loan for travel?
Yes, you can take a personal loan to meet your travel costs. These may include the cost of flights or other transportation, sightseeing, hotel accommodation, and so on.
2. What is the tenure for personal loans?
Personal loan tenures vary across lenders. In many cases, it is up to 36 months or slightly more. Choose a tenure that fits your budget.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
