Life can put you in any situation. And there are going to be instances when you need to borrow money to buy something you cannot afford on your own. Having to pay for your child’s higher education, getting your favorite car, a medical emergency; can be anything. Fortunately, the industry has a lot to offer when you need funding. The easiest available among them is a personal loan. It is perhaps the most appealing option for borrowers.

You can use this funding in the way you want. This in itself makes it the most preferred choice of borrowers, small and large. But there are things about the most attractive unsecured loan that you must know of.

Things about personal loans you must know about

Be informed of the following things about the personal loans as well:

 

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Personal loans are offered at a rate of interest higher than that of secured loans

Lenders in general charge rates of interest for personal loans higher than secured loans like a home loan. In availing of a home equity loan, you use your own home as collateral. Do it only if you have a sufficient amount as equity on it. Because in the instance of default, you stand to lose your own home.

A credit card balance transfer is another alternative for a personal loan. Evaluate such an offer from different sources, compare it with a personal loan offering and go for the one you feel would work for you best. In credit card balance transfer, see to it that you pay off the balance before its expiry date.

Again, if you are someone with bad credit, you end up paying a higher rate of interest than someone with a good CIBIL score. 

You may not be able to pay your personal loan installment on time

This is the most dangerous situation you may face when you thoughtlessly install a personal loan app and apply for a loan. At the end of the month, you may find that the installment of your loan is too high for you to pay. Defaulting here carries consequences to your financial stability. 

Before signing up for a loan, check the amount you have to pay at the specified intervals. Sign up for it only if it will stay well within your budget.

People default on loans in general due to loss of work. The smart option here is to save expenses for a few months. This will help you remain consistent with the loan repayment in such an instance.

Taking a loan, you may go down, deeper into the debt

When taking a personal loan, you commit yourself to pay for it every month. This, in a general scenario, it interferes with your ability to do other things. For instance, you may be saving money for early retirement from your 9-5 job. This becomes all the more difficult when you take up a personal loan. Making such a sacrifice to repay a loan may tire you up in the long run. 

The best option is to look for ways to avoid it. Why hurt yourself with undue debts. Go for a loan only if you can handle it without making untoward sacrifices.

A loan can impact your credit score

Availing of a personal loan is a breeze. But you should be aware of the risks involved in the instances of default. Failure to repay the loan on time will have a poor impact on your CIBIL score as it may go down drastically. And this will affect your ability to avail of loans in the future.

Another trap your personal loan has set up for you comes in the form of terms and conditions. An unsecured loan is not the liberty for you to default when in trouble. 

Your lender may impose additional charges on interest and the principal amount in the instance of failure to pay your dues. Have a thorough analysis of the terms and conditions of the personal loan you choose before making a commitment.

You have to be aware of the loan timeline

You may know the action your lender may probably take if you default on the loan. But have you ever considered the timeline? It may be shorter than you have ever imagined. You may be given a 7-14 days grace period when you default. Afterward, it is going to show up in your credit rating. 

In a general scenario, lenders will happily work with struggling borrowers. But you have to contact your lender and discuss your situation at the earliest.  You may get a longer-term. Your lender may even let you stop repayment for a specified period of time.

Response to loan defaulter may vary from lender to lender. But here is the general timeline you can brace yourself for:

  • After 30-60 days: Your lender will contact you within 30 days of your default. The person or agency may charge you for late payment. It will then be reported to your credit card issuer. This leads to a fall in your credit score. Your lender will try to work with you even after 60 days. But credit card companies will know this, and your credit will nosedive into the depth.
  • When 90 days have passed, your lender will try to contact you. And this time, you may face bigger difficulties. This, your lender does, with a view to getting at least some of the money you owe. You may get an opportunity to settle the case. But an unsecured loan may come with penalties and charges for late repayment.

However, if the loan is secured and you fail in court, you stand to lose your collateral. So, despite all

these odds, getting a personal loan still remains the easiest way to get quick funding. 

You must have to be aware of these things about the personal loan mentioned above before availing it. If

you have a good income and can take a loan without draining your budget, a personal loan is the one for 

you.

Reliable lenders offering personal loans at affordable interest rates are there in plenty. Make sure to do your due diligence.

Anil Sumra

Anil Sumra is a Digital Marketing Expert with more than 10 years of experience. He loves to write on various financial topics online to create financial awareness. He holds a bachelor’s degree in Finance & Management.

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