Personal Loan Dos and Don’ts – A Borrower’s Guide

Are you planning to get a personal loan? Then this blog is definitely for you!

Probably the most popular loan of them all, personal loans are highly sought after due to their versatility and ease of availability. 

But, getting a loan is just the start. The repayment is where the real deal is at. If you are unable to repay your loan on time, you’ll find yourself potentially falling into a debt trap which can seriously hinder your credit score.

So, when can you actually take a loan? Is there a right time? The right reasons? Or should you only take it in emergencies?

We’ve got you covered.

Here’s a list of dos and don’ts for you to follow.

Dos – Personal Loan Edition

Here are the things that you can (and should) do before and during your personal loan application –

1. Do Figure out why you need a loan in the first place

Remember, all loans need to be repaid on time and will involve interest rates. So your reason to get a loan should justify this. Popular reasons include – medical emergencies, home renovation, buying a new gadget when you really need one, etc.

While there is nothing wrong with getting a personal loan for vacation or purely recreational purposes, you must ensure that you are in a position to repay it (which we will discuss in our next point).

2. Do Have a Repayment Plan in Place

Your EMI will not just consist of the principal amount but also the interest component along with other charges like processing fees. Will your monthly income be enough to repay EMIs each month without delay or failure?

Make a repayment plan, even a tentative one. Use an EMI calculator and consider factors such as your potential future income (raises, bonus, etc.), possible expenses, and so on.

3. Do Research and Compare

There are plenty of lenders in the market today which means that borrowers are spoilt for choice. Each lender offers a variety of products with their own terms and conditions. It is important to do your research and understand the conditions offered by them.

Check and compare reviews online, the interest rates, the amount being offered, and choose the loan that works best for your circumstances.

4. Do Check the Terms and Conditions

Examine the terms and conditions carefully. While most lenders advertise their best products and the many advantages, not all of these are applicable to every borrower. 

Most genuine lenders such as Money View are upfront about their terms and conditions, but it is still important to read the fine print such as possible penalties and hidden costs.

Don’ts – Personal Loan Edition

1. Don’t Miss Even a Single Repayment

If there is one rule when it comes to loans that cannot be broken, it is this – do not miss even a single repayment. In certain circumstances, the lender can give you an extension but in most cases you may be asked to pay a fine. Additionally, this will also significantly affect your credit score.

2. Don’t Apply for Multiple Loans at the Same Time

Regardless of your income, taking or even applying for multiple loans at the same time can bring down your credit score. It will also be difficult for you to keep track of and repay multiple loans at the same time.

Also, ensure that your loan is not more than 30% to 50% of your FOIR (Fixed Obligations to Income Ratio). Your FOIR is an important metric for loan eligibility and if a large chunk of your income is going towards loan repayments, your loan eligibility will be affected.

3. Don’t Borrow From Unrecognized Lenders

As mentioned previously, there are a number of lenders in the market today and unfortunately, not all of them are legitimate. There are many unregistered lenders today who charge exorbitant fees unnecessarily.

Always check for reviews on PlayStore, online, and from peers before choosing a lender.

4. Don’t Decide Only Based on Interest Rates

While interest rates are a significant factor when it comes to choosing a loan, you can’t rely only on this. The EMI you pay is determined by your principal, interest, as well as repayment term. Many individuals opt for a longer term as the interest rate will be lower. However, the overall interest amount you pay will be higher if you choose a lengthy repayment term.

Focus on multiple factors such as the legitimacy of the lender, the amount being offered, processing charges, etc. 

In Conclusion

Getting a personal loan is quite easy these days thanks to online apps but when one is faced with multiple choices, decisions may not always be right. The above dos and don’ts will help you in this regard.

Remember to also keep your credit score in mind before getting a personal loan and ensure that you have a repayment plan in place. Get a loan only when you need one and look around before choosing the right one.

In the meantime, if you need an instant loan within 24 hours from a legitimate, highly rated lender 4.6 on PlayStore, visit the Money View website or download the app.