4 Factors To Consider Before Availing a Personal Loan

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Minimum documents, no collateral, and flexible loan tenure — these benefits of a personal loan make it an attractive funding option.

Personal loans are also an excellent choice for people with bad credit ratings to fulfil their dreams. You can spruce up your home, purchase a new car, or cover some expenses due with these quick funds.

With these benefits, most of you can overlook the high variable personal loan interest rate of 14.41%. However, availing of these zero-collateral funds requires you to consider certain vital aspects. Which are these factors? Find out in this article.

Thorough Research

Often a cliché, but it does hold through. Research of lenders, financial institutions, and personal loan interest rates are essential before availing these loans.

Remember, you will find some interested lenders in the market that can offer you such unsecured loans. But the onus is on you to align the terms that suit your repayment capacity. While researching, ensure you pay attention to these factors:

  • List of at least ten lenders offering
  • Analysis of your existing financial condition
  • An estimate of your repayment tenure capacity
  • Interest rates list of different financial institutions

Once you have a decent idea of these aspects, it is safe to proceed further.

Credit Score

Some lenders can provide unsecured loans to people with bad credit. However, such loans have a hefty interest rate and strict terms.

The reason for these high-interest rates is simple. Offering funds to people with bad credit scores pose more risks to financial institutions. Hence, they naturally favour applicants with higher credit score ratings.

For this purpose, you can improve your credit by following some of these tips:

  • Pay bills on time
  • Become a credit card authorised user
  • Pay off all or most of the debts
  • Dispute inaccurate data on your report

Overall, ensure that you have a good idea about your credit score rating and try to improve it gradually.

Prepayment Option

Some lenders allow you to pay the loan before the expiry of its due date. This way, you can improve your credit and reduce the total interest obligation.

Hence, before availing of a personal loan, ask the lender about this facility. Some financiers can also charge a prepayment fee. Still, you will benefit from the reduced overall interest due to this factor.

Also, consider your capacity to repay the loan amount for setting realistic financial goals.

Eligibility Check

Finally, you should keep track of different lenders’ unsecured loan eligibility criteria. In most cases, financiers need the following data:

  • Status of employment
  • Income (monthly or annual)
  • Residency
  • Credit history
  • Loan security
  • Assets and debts
  • Age and address proof

Ensure that you have all these details to avoid any last-minute rush.

To summarise, research, credit score, prepayment options, and eligibility are essential before availing of unsecured loans.

Make sure that you are considerate of the current personal loan interest rates. These rates are higher than secured loans due to the ‘no collateral’ benefit. You can also augment your credit rating before opting for these loans.

A better credit score will improve your chance of acquiring funds without much hassle. Also, the number of lenders offering these loans will increase. Overall, stay informed and walk-in well-prepared before filing for a personal loan application.