5 must-ask questions before applying for a personal loan

As personal loans are becoming increasingly accessible for individuals in India to meet financial needs such as medical expenses, education, home renovation etc, in light of the same, it becomes prudent for aspirational borrowers to make well considered and informed decisions.

Hence, before committing to a loan, consider these five essential questions to ensure financial stability and avoid potential pitfalls.

1. What is the purpose of the loan?

Focus and identify the specific reason for applying for a loan. Most of the personal loans are versatile in nature. They can be used to meet several different needs and aspirations such as education, home renovations, medical emergencies or even consolidation of debt. That is why efficient planning is required on the part of borrowers.

It is also always prudent to avoid taking loans for non-essential purposes. Do check if the expenditure is immediate or if other alternative funding sources can be availed before applying for a new loan.

2. How much should you borrow?

Write down and determine the exact amount you need to meet your decided objective. Reckless borrowing can lead to higher interest payments over time and can easily result in unnecessary financial strain. Whereas under-borrowing might leave you short of funds. That is why a well thought out and calculated loan amount ensures you strike the perfect balance.

3. Will you be able to afford the EMI?

This is a very important question for you to ponder on. Carefully evaluate your repayment capacity by calculating the Equated Monthly Instalment (EMI).

As per recommendations the total EMIs should never exceed 40% of your monthly income. To make this process seamless, you can use the online EMI calculators to estimate repayments and ensure that they are comfortably within your budget.

4. What is your credit score?

Your credit score is a three digit number, provided by leading credit bureaus. This number generally stays between 300 to 900. A higher score indicates a better credit profile. This number influences loan approval and interest rates.

A score of over 700 is generally considered good. Whereas a credit score of over 750 is considered as excellent. Consistent monitoring of your credit report for inaccuracies and sincere efforts to improve your score can go a long way to help you with loans on easier terms and conditions.

5. Have you compared lenders?

Asking this question of comparing peer leaders before submitting your loan application with any one of them is another sensible question to keep in mind. Interest rates, processing fees, loan conditions, terms etc., vary across financial institutions.

Think about, write down and make sincere efforts to compare offers from multiple lenders, speak with their respective customer service representatives to find the most suitable personal loan for yourself. Do consider factors such as prepayment penalties, customer service, lender credibility along with any hidden charges before making the decision.

Hence, by asking these simple yet thought provoking questions before applying for a personal loan will help you in opting for the best possible loan according to your aspirations and long term goals.

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