5 Crucial Measures To Remember If You Are Planning For A Personal Loan

A personal loan can benefit the borrower in times of various financial needs. A borrower can utilise the funds for any expenses or take care of any emergency. However, the loan process also includes the successful repayment of the loan amount plus interest. If the repayment isn't on time and not following pre-determined terms, the loan can turn into a financial burden in the life of the borrower.

Bad debt can have lasting effects on the credit and financial records of an individual. These records can also cause issues in future monetary transactions.

Here is a list of measures that one should undertake to ensure that a loan does not change into a bad debt.

1. Research the loan before opting for it – Before applying for a loan, compare loans offered by multiple banks, NBFCs and online loan apps. The interest rate can make a huge difference in loans in the long run. It is always wise to select a loan option whose interest rates can easily be supported by your financial status without causing a burden. Do research about additional fees, if any. The borrower should also have a conversation with lenders to figure out what would the best personal loan options are for their needs before making a final decision. Negotiate terms keeping all your interests in mind.

1. Read all offer documents carefully before opting for the personal loan – No matter what a loan agent may explain or what terms are apparent on a surface level, do be careful and read all offer documents. There are often clauses that people might miss and accept without knowledge of the same. We do not want any unseen clause to create a financial issue later. Therefore, read all offer documents before signing.
2. Try to repay EMIs on time - This is the most important measure to prevent a loan from turning into bad debt. Determine a proper repayment strategy and follow through with the same. Most lender organisations offer options for setting up auto-payment for the monthly instalments. Under this system, every month on a certain date, the EMI amount would be deducted from the borrower's account. This method solves the problem of forgetting to pay instalments on time.
3. Do not opt for a loan amount greater than your requirement – In present times, whether via banks or online loan apps, personal loan amounts can be as high as 75 lakhs, given certain conditions. Also, the lending organisation benefits by trying to convince clients to take out loans of a high value. Please remember, it is never wise to opt for a loan amount that is higher than your requirement. Think the contract through and understand that eventually, the payback process of the personal loan can become extremely financially draining. Only apply for a loan amount that you require.
4. Keep Credit Utilisation Ratio below 30% - Credit card loans are a recurring matter that many people deal with each month. Credit cards' credit limit is often increased by the credit company keeping credit history, spending habits, and income changes in mind. However, a high credit limit is an invitation for raking up high credit loans with considerable interest. To prevent the credit card from turning into a recurring bad debt, it is suggested to keep the Credit Utilisation Ratio below 30%. Whatever the credit limit, make an active attempt to keep expenses below 30% of that limit amount.

It is not difficult to ensure that a loan remains only emergency assistance in a borrower's life and not an eventual burden. Research is crucial in any financial move, and so is the understanding of one's financial needs. Take all precautions possible and always delve into loan formalities with a solid financial plan until the loan is repaid in full.

Mumbaikar, MBA Student, Traveler, Foodie, & all I need is Coffee and Mascara.