9 Most Important Questions to Ask Before Applying for a Personal Loan

Aug 19, 2023 / Reading Time: Approx. 6 mins

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9 Most Important Questions to Ask Before Applying for a Personal Loan

A Personal Loan can provide much-needed assistance during a financial crisis. It has become a popular borrowing option due to its collateral-free nature and minimal paperwork requirement. Moreover, the process to get a Personal Loan is notably quicker compared to alternative loans. As there are no constraints on how the loan amount can be used, it can fulfil various financial needs, including home renovations, purchasing a high-end smartphone, covering school fees, hosting an event, settling medical expenses, and numerous other possibilities.

However, many individuals hesitate to apply for a Personal Loan as they are unsure about the Personal Loan requirements, how to get a Personal Loan, and what to know before applying for a Personal Loan. This article elucidates the 9 most important questions to ask before applying for a Personal Loan.

Here are the 9 most important questions to ask yourself before applying for a Personal Loan:

1. Why Do I Need a Personal Loan?

When faced with an immediate need for funds, choosing a Personal Loan seems to be the most suitable choice. But when you borrow money from a lender, you are required to adhere to specific Personal Loan terms and conditions levied by the lender. This implies allocating a portion of your future earnings to fulfil monthly loan repayment commitments. If your income is restricted and there are no prospects of financial improvement on the horizon, it might not prove to be a good idea to seek a Personal Loan, as it could strain your budget. While availing of a Personal Loan to address financial emergencies or fulfil pressing monetary needs seems beneficial, if used for frequent indulgences such as lavish vacations or buying expensive gadgets, it can potentially put you in a debt trap. Hence, before opting for a Personal Loan, you must ask yourself why you need a Personal Loan. If the answer is not a financial emergency, you might be borrowing for the wrong reasons, and it may not make sense to apply for a Personal Loan.

2. How Much Personal Loan Amount Do I Need?

Individuals typically opt for a Personal Loan during urgent situations. Oftentimes, borrowers are unable to dedicate ample time to assess their exact needs or to compare loan eligibility across various lenders. Consequently, many borrowers receive insufficient loan amounts or select the entire eligible amount without proper consideration, leading to instances of inadequate or excessive borrowing. Getting an inadequate loan amount defeats the purpose of obtaining a loan, as it may not be able to fulfil your financial needs. Similarly, excessive borrowing can make the repayment process challenging and stress-inducing due to higher EMIs. Hence, before opting for a personal loan, you must calculate the personal loan amount you need by accurately assessing your financial requirements to prevent either inadequate or excessive borrowing.

Click here to download Your Definitive Guide to Avail of a Personal Loan in India for free!

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3. What Should Be the Personal Loan Tenure?

Once you've determined the required borrowing amount, you should determine the desired Personal Loan repayment tenure. If you intend to pay off the loan within one or two years, your monthly instalments are likely to be higher compared to extending the loan duration to five years. However, bear in mind that choosing a longer loan term will result in accumulating more interest over the loan tenure. Given that individual circumstances vary, you must evaluate the advantages and disadvantages of choosing a longer versus shorter loan tenure and choose the right term that suits your financial situation and requirements.

4. Do I Fit in the Personal Loan Eligibility Criteria?

Before you proceed with a Personal Loan application, it is essential to verify your eligibility. The requisites for eligibility, encompassing factors like age, monthly income, type of employment, credit score, and duration of employment, can differ between different banks and NBFCs. Hence, it is advisable to review the specific Personal Loan eligibility criteria of your chosen lender before you apply for a personal loan.

5. Are There Any Hidden Charges Apart from the Interest Rate?

Certain lenders impose fees for Personal Loan prepayment or foreclosure. Lenders apply this fee in situations where you wish to settle your loan ahead of schedule or transfer your existing loan balance to a different lender. Moreover, Personal Loans may have additional charges beyond the interest rate, such as processing fees, service charges, and insurance costs. There could also be penalties for instances like bounced checks or delayed payments. Hence, before applying for a Personal Loan, it is crucial to review these charges.

6. How Much Time Will the Personal Loan Disbursement Take?

One advantage of opting for a Personal Loan is its swift processing timeframe. The loan application requires minimal documentation. Additionally, certain banks offer pre-approved Personal Loans, which can be availed of without any documentation. Once the documentation and verification steps are done, the loan amount is typically disbursed within 48 hours. In specific scenarios, a few privileged customers might even be eligible for instant loans that are disbursed in a few minutes after the application is submitted.

7. Have I Used the Personal Loan Calculator?

A Personal Loan EMI Calculator is a valuable tool designed to assist individuals in determining the amount of their future monthly instalments for repaying a Personal Loan. Using the Personal Loan Calculator, borrowers can easily estimate the Equated Monthly Instalments (EMIs) they will be obligated to pay. This handy calculation tool proves to be extremely beneficial as it helps in effectively budgeting your future finances, ensuring a clear understanding of the financial commitment required for loan repayment. With the ability to project future EMIs accurately, you - the borrower, gain valuable insights into your financial obligations, enabling you to make informed and responsible decisions.

PersonalFN's Personal Loan Calculator is a financial tool that simplifies the complex process of calculating EMIs and understanding the financial implications of a Personal Loan. By inputting a few loan details, you can instantly obtain accurate results, allowing you to make informed financial decisions about loan affordability and repayment strategies. By visualising the breakdown of the loan amount and principal payments, you can plan your finances effectively and avoid potential financial strain.

How to Use a Personal Loan Calculator Effectively: A User-Friendly Guide

8. Have I Done Thorough Research?

In today's competitive market, numerous banks and Non-Banking Financial Companies (NBFCs) offer personal loans. Rather than hastily approaching the first lender you encounter, conducting comprehensive research and comparing various lenders is advisable. A simple online search can assist you in locating a lender offering a reasonable Personal Loan interest rate and processing fee. Alternatively, you can conveniently assess different lenders on a single financial website that facilitates Personal Loan comparisons. However, it is prudent to verify the most up-to-date fees and charges on the official website of the chosen lender, as certain financial websites may not be updated. Doing thorough research will ensure you don't miss a more favourable offer. Nevertheless, it is advisable to exercise caution and avoid applying for a Personal Loan with multiple lenders within a short timeframe. When you submit a loan application, the lender initiates a credit score assessment. Multiple credit inquiries within a brief period can potentially impact your credit score.

9. Have I Considered Alternatives to a Personal Loan?

Before you finalise availing of a Personal Loan, it is advisable to consider the available alternatives. If you anticipate an upcoming festival bonus or performance hike from your employer, it is advisable to exercise patience. Likewise, if your investment is approaching maturity and a substantial amount is due, it is prudent to use those funds rather than resorting to a loan. Additionally, it also makes sense to explore alternative loan options, such as Gold Loans or Loans Against Mutual Funds, which come with relatively lower interest rates.

To conclude:

When you apply for a Personal Loan, asking the right questions can pave the way for informed decisions. By considering factors such as your financial goals, repayment capacity, and loan terms, you empower yourself to navigate this financial avenue wisely. Assessing the true urgency of borrowing, understanding associated costs beyond interest rates, and aligning loan tenure with your needs safeguard your financial well-being. Armed with these crucial questions and their answers, you can confidently embark on your Personal Loan journey, fostering stability and achieving your aspirations.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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