Questions to Ask Yourself Before Availing a Personal Loan
When financial needs arise, whether for unexpected expenses, a major purchase or achieving a personal goal, a personal loan can seem like a quick solution. However, before you jump into any commitments, it’s essential to take a step back and consider a few key factors. Asking yourself the right questions can help you make an informed decision and avoid potential financial stress. Here’s what you need to ask yourself before availing a personal loan.
Before making an application, it is important to be clear about the purpose of the loan. Determine the exact amount required. Borrowing more than needed can lead to unnecessary debt and higher interest payments. Knowing your exact reason will help you determine if a personal loan is the best option. Loans come with costs, so it’s wise to ensure the loan serves a necessary or valuable purpose in your life.
2. Are you only borrowing the amount you truly need?
It’s tempting to take a larger amount if you’re eligible for it, but borrowing more than you need increases your debt burden. Extra funds may lead to unnecessary spending and additional interest charges, affecting your overall finances. Calculate the precise amount you need and apply only for that, staying focused on avoiding extra debt.
3. Is the lender trustworthy?
Research the lender's reputation. Look for reviews, transparency in terms, and customer service quality to ensure reliability. Trusted lenders generally offer clear terms, while others may have hidden charges or unclear clauses that could cost you in the long run. Choose a lender who operates ethically and provides clear, fair terms.
4. Can you afford the monthly EMI comfortably?
Calculate your debt-to-income ratio. Ensure that the EMI fits comfortably within your monthly budget without straining your finances. Financial experts often recommend keeping your debt-to-income ratio below 40%, meaning that no more than 40% of your monthly income should go toward debt repayments, including the new loan.
5. Understand the Impact of Your Credit Score
A good credit score can open doors to lower interest rates and better loan terms. Most lenders assess your credit history before approving a loan and those with high scores typically get favourable rates. A higher credit score often leads to better loan terms. Check your credit score and take steps to improve it if necessary, before applying.
6. Compare Interest Rates Across Lenders
I Shop around and compare interest rates from different lenders. Consider factors like fixed vs. floating rates and additional fees. Negotiating with lenders or checking offers for existing customers can sometimes result in lower interest rates. Ensuring you have a healthy credit score also plays a vital role in accessing competitive rates.
7. Evaluate the Loan's Long-Term Impact
Consider how the loan repayment aligns with your long-term financial goals, such as saving for retirement or purchasing a home. Weighing the opportunity costs will help you see if this loan is an advantage or if it risks derailing your financial plans.
8. Plan for Repayment Challenges
Understand the lender's policies on missed payments, including penalties and impact on your credit score. Have a contingency plan in place.
Unity Small Finance Bank Personal Loan Overview
For those considering a personal loan with Unity Small Finance Bank, here are the key details:
Loan Amount: ₹1 lakh to ₹5 lakh
Interest Rate: 16% to 36% p.a., based on creditworthiness
Tenure: 12 to 36 months
Processing Fee: Up to 3% of the loan amount
Eligibility Criteria:
- Age: 23 to 55 years
- Monthly income: Minimum ₹20,000
- CIBIL Score: Ideally 675 or higher
Cooling-Off Period: 3 days post-disbursement for cancellation
Foreclosure Charges: 5% of the remaining loan amount after the first 6 months
Conclusion
Before committing to a personal loan, it's crucial to:
Assess Your Financial Situation: Understand your income, expenses, and existing debts.
Research Lenders: Compare interest rates, terms, and customer reviews.
Plan for Repayment: Ensure that the EMI fits within your budget and aligns with your financial goals.
By taking these steps, you can make an informed decision and avoid potential financial strain.
