Personal loan, as the name itself suggests, is the loan taken to fulfill any personal financial requirement. It can be used to meet the unexpected medical expenses or to purchase home appliances or even it can be used to purchase apparels of your favorite brand! Personal loans are easy and convenient way to borrow money when you are badly in need of it.
Personal loans are easy to avail because no securities or guarantor is required to avail this loan. Although it is bit expensive when compared to home loan and car loan, personal loans can be taken with less hassle as it require less paperwork and documentation.
Before applying for personal loan, it is very important that you know the following five things and understand how they impact you:
- Provide security if you can: Though personal loans can be taken without any security, check with your bank if you have the option to provide any securities such as jewels, national savings certificates (NSC), shares and debentures of listed companies, life insurance policies etc. Providing securities may make the process of borrowing quicker and your loan may also become cheaper.
- Compare interest rates: Interest rate on personal loan varies from bank to bank. Shop around and compare the interest rates offered by different banks. You should negotiate for better rates.
- Compare fixed vs. floating rate personal loans: Many banks offer personal loans with fixed rate of interest for the entire tenure. Compare the interest rates for fixed vs. floating rate personal loans before making a choice.
- Beware of fees: As with home loan and car loan, banks charge processing fees and pre-closure charges. Banks usually charge 2 to 3% of the loan amount as these charges. Processing charge will be deducted from the sanctioned loan and many bankers do not allow you to pre-close the loan within the first six months. These charges will make your loan costly, so try to negotiate with your banker.
- Relationship discounts if any: Sometimes the banks offer relationship discounts if you are already an existing customer of that bank. If you are banking with them, then you may get some advantages in the form of reduction in interest rates or reduction in certain charges.
Personal loans are very helpful especially when you are in need of money but have no time to wait. The above mentioned points can vary from bank to bank. Talk, discuss and NEGOTIATE with your banker before taking the loan and get all the assurance and options given by the bank in writing. NEVER sign the blank application form and/or document.