With the present state of the world, managing finances is one of the most challenging jobs for regular households. Not everyone has a wad of cash idly lying around. It is justifiable for such households to seek personal loans from non-banking financial companies (NBFCs) and banks. If the loan is approved, people will get a lump sum of money, which they would have to repay monthly through fixed payments until the loan term expires. One would have to pay interest on the amount of money they borrow.
What is the Need for a Personal Loan?
People may need the loan for several reasons. For instance, if you are looking forward to making a significant addition to your house, you can choose to take a personal loan. The improvement should add value to the present market value of your home. You can take loans to consolidate high-interest liabilities, like credit card debts, because such loan interests are certainly cheaper than credit card interests.
Moreover, the loans can finance extravagant expenditures like vacations or weddings. Loans can also cover emergency expenses or medical expenses.
What Should you Choose: Banks or NBFCs?
An essential question many people ask is whether they should seek finance from a bank or an NBFC. The NBFC personal loan charges higher interest rates while the banks charge a comparatively low interest personal loan. Moreover, it is easier to resolve disputes with banks and seek compensations (if any) than with an NBFC. Although both have their advantages and disadvantages, it may be wiser to seek financial assistance from banks first.
Choosing the Right Personal Loan Tenor
It is undoubtedly vital for you to choose your personal loan tenor wisely if you want to maximize your loans’ value. Here are some steps which could assist you in making an informed decision about the tenor.
Comprehend your monthly income and budget.
Before securing a loan, you should determine whether you can pay it back. At first, you should list down all necessary and non-essential expenses that you incur each month. It should include utility bills, food expenses, rent, mortgage payments, vehicle maintenance cost, vehicle loan payments, fuel costs, conveyance expenses, etc. After you know the total amount of money you must spend each month, you will find that whatever is remaining is what you can pay as an instalment for the personal loan.
2. Carefully evaluate your financial prospects.
If you are a job-holder who can receive a pay hike in the future, it will indicate that you may have more disposable income in the future. So, you can pay off your loan sooner. Likewise, if you are a businessman, you should consider if your business will see increased sales in the present economy.
3. Use a personal loan EMI calculator.
Each bank has its own personal loan EMI calculator. Also, there are several such calculators available online. Such calculators will quickly help you determine the EMI based on the interest rate, the amount of loan, and the interest rates. So, you can assess whether you can afford it or not.
Personal loans are more accessible than other types of loans. However, you make an informed decision before taking a loan. It would be best if you did not rush things as it can hurt your financial position in the long run.
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