A Personal loan is a type of credit taken for any personal reason. This loan is not for any specific purpose.
It’s hard for most of the common people to meet financial commitments. The main reason behind this is the stagnation of income and increase in the cost of living. A very quick and simple way to meet the financial need is to take a loan from the banks or NBFCs. These institutions offer many types of loans which can confuse a borrower. Every financial institution has different loan categories to cater to different requirements of customers and personal loan is one of the most common categories of the loan.
If you are running short of finance to meet your dreams like a car, renovation of a house, buy a new phone, pay tuition fee, throw a party etc then the personal loan is best for you. But, things are not so easy as it seems. The financial institutions check many things on your side to see your eligibility for personal loans. Like other things, personal loans has both pros and cons.
Here, we will discuss in detail about the different aspects of personal loans like the things which should be taken into consideration for the personal loan, average interest loan for the personal loan in the US, when one should take the personal loan and the most common lenders.
What should be taken into consideration for personal loan?
Before applying for the personal loan, one must take into consideration the following things.
- Interest rate: First, you should check whether you are getting the loan at a flat interest rate or at reducing interest rate. A Flat interest rate is generally offered at low interest rate which attracts you more quickly while the reducing balance interest rate is offered at a higher rate.
So, be careful about this while applying for the personal loan.
- Assess overall cost: If you think that you have to pay the interest of the personal loan only then you are wrong. You have to pay other costs except for interest of loan such as processing fee, prepayment fee and late payment fee.
- Always consider your need not eligibility: Never influenced with the wordings of bank executives while borrowing. Sometimes they try to convenience you to take more loan than you need. Suppose you require Rs.2 lakhs, but according to your eligibility they will try to convenience you for Rs.3 lakhs. You should borrow as much as you require not more than that.
- Try to search for a better rate: Try to shop for a low rate. Take a personal loan from those financial institutions which offer you the lowest interest rate.
- Don’t borrow more than you can repay: Try to think that are you in a position to bear the monthly EMI your personal loan. Never borrow more than your repaying capacity.
- Check your CIBIL score: Always check your CIBIL score before applying for the personal loan. CIBIL score is one of the criteria upon which rate of interest increases or decreases.
- Take help of your family and friends: Before applying for the personal loan, try to talk to your close friends and family if they can arrange some money for you. It will help you to avoid the burden of heavy interest on personal loan because most probably your family and friends won’t charge any interest.
What is the average interest in the US for a personal loan?
The average interest rate in the US for personal loan is in the range of 10%-28% based on the credit score. However, the interest rate for the personal loan depends on various factors like your credit score, tenure of the loan, the lender and your loan amount.
The Credit score is one of the main factors in considering rate of interest. The higher the credit score, the lower will be the interest rate.
The average interest rate in the US by lenders is in the range of 5%-36%. Banks and other financial institutions will offer higher rates, but some online lenders can offer you at the lower rates.
When should one choose to take a loan?
There are many situations in which one should choose to take a personal loan. Some of the main reasons are.
- To refinance your high-interest debt.
- If you are planning to purchase a large thing like any appliance or electronic device.
- Going for a long tour or planning a vacation.
- For the renovation or improvement of your home.
- For the expansion or establishment of a small business.
- Bearing the expense of a marriage or ring ceremony.
- Paying for medical expense.
Who are the most common lenders?
The most common lenders are:
Banks: Banks are one of the most common lenders. Here are some pros and cons of taking a loan from the bank
- Low and fixed interest rates
- Makes your CIBIL/credit score.
- Monthly repayment amount can be predicted easily.
- Relationship with the bank can be made stronger.
- Lengthy process and verification at every step after applying for the loan.
- Requires a good credit score.
- Generally, requires some security for loan approval.
Insurance companies: Insurance companies also provide loan against your insurance policy. Here are the pros and cons of taking loan from the insurance company.
- No process before loan approval as you are taking the loan against your insurance policy which is your own asset.
- As long as your insurance loan is equal to or less than the amount of premium, you need not pay tax on that.
- If the loan amount is not paid before your death, the amount of the loan plus interest on that will be deducted from the death benefit of your beneficiary.
- Your policy could lapse if the loan balance increases above the cash value.
- Most of the credit companies approve a loan for those also who have a low CIBIL score with high -interest rate.
- Loan approval process is easier than banks.
- Paper-work is much lesser.
- Overdraft facility is not available.
- Sometimes they Offer interest rates higher than banks.
Black market: Black market is one of the options if you are not getting a loan from anywhere. You do not require any legal documentation for taking a loan from the black market.
- No processing requires for loan approval.
- You can get the loan at any time.
- Interest rate so high.
- Short duration of repayment.
Everyone needs a personal loan at some point of life to full fill their dreams. But you should keep in mind that personal loan should be taken only in the emergency. There are many options available in the market to avail a loan. Read all terms and conditions of the financial institution carefully before taking loan. Only interest is not the factor you should consider, we have discussed all in detail above. So, before taking a loan you must assess the total cost of different institutions for comparison.