Unsecured loans are those which do not have any security or collateral to pledge. These loans are mostly given to individuals who can prove their financial stability, creditworthiness and requisite savings. An unsecured loan is a great financial tool that can help you bridge short-term cash needs. However, the right time to avail an unsecured loan may vary from person to person. Unsecured loans should ideally be used as a supplement to your other financing options rather than as a replacement. You should evaluate if now is the right time to take an unsecured loan before you approach any lender for it. Some of the main factors that you need to consider before taking an unsecured loan include – Is now the right time for me? Are there other financing options that I can use first? Do I need an unsecured loan?

Know Your Eligibility Criteria

Before you approach any lender for an unsecured loan, you will want to make sure that you are eligible for it. The eligibility criteria for unsecured loans may differ from one lender to another. But, in most cases, you will need to have good credit standing and have a minimum savings of 10% of the amount you are requesting. Other factors that may affect your eligibility for an unsecured loan include your liquidity, credit card debt, your ability to repay it back as well as the current market conditions. Before approaching any lender, it is essential that you evaluate your eligibility criteria. Once you make sure that you are eligible, you are ready to go ahead and discuss your financing options with any potential unsecured loan lender.

Evaluate If an Unsecured Loan is Right for You

Once you know your eligibility criteria for an unsecured loan, you can now evaluate if an unsecured loan is right for you. One of the best ways to do this is by calculating the required amount. There are calculators online that will help you with this. The amount that you need to borrow will be dependent on a number of factors, including your financial standing, the amount of interest you have to pay, your monthly repayment capacity and other financial commitments like debt payments and upcoming expenses. To calculate the required amount, take into account your debt repayments, monthly expenses, your monthly income and the amount of money you want to borrow. Once you know the required amount, that will help you in evaluating if an unsecured loan is right for you.

Calculate the Required Amount

Once you know the required amount, you can now go ahead and calculate the amount that you will have to borrow. To do this, you will have to take your monthly debt repayments, monthly expenses, your monthly income and the required amount of the unsecured loan and apply that math formula to come up with the amount that you will have to borrow. The amount that you will have to borrow will be a percentage of your total debt. Therefore, it is important that you do not go for an amount that is less than your total debt. Ideally, you should borrow a percentage of not less than 25% and not more than 50% of your total debt. This percentage will depend on your financial situation and creditworthiness.

Should You Use Other Financing Options First?

Another factor that you need to evaluate before taking an unsecured loan is whether it is better to go for other financing options first. There are many options available to you when it comes to financing. You can choose to go for a home loan, take a bank loan, take a credit card loan, borrow from family and friends, use a personal loan or invest in stocks and shares. All these options have their own pros and cons. You should choose the one that is best for you based on your financial standing, the amount of money that you want to borrow, the liquidity that you have and other factors. Depending on the amount that you are looking to borrow, you can choose from a variety of financial tools. However, unsecured loans are a last means of funding and should be only used as a short-term one.

Do You Need an Unsecured Loan?

The most important part of the evaluation process when you are looking to take an unsecured loan is to make sure that you need one. This will help you in evaluating whether you should take an unsecured loan or borrow from other financing options first. When you need an unsecured loan, it is important that you evaluate if you can repay it back as well as when you will have the money to repay it back. If you know that you will be able to repay it back soon, then an unsecured loan is a good idea. However, if you know that you will be in a bad financial situation in the near future, then an unsecured loan is not the best option for you. You should consider other financing options first and then take a loan from an unsecured lender only if you know for sure that you will not be able to pay it back.

How to Choose an Unsecured Loan?

The last thing that you need to keep in mind before you take an unsecured personal loan is that you should choose the right lender or loan app. There are many lenders and loan apps out there who are looking to make a quick buck. Therefore, it is important that you choose the right one. The best way to do this is by checking the reviews of the lenders and loan apps that you are considering. You can also get their details from online sites. You can compare their terms and conditions and loan amount to know the right one for you. Once you have selected a lender or loan app, it is important that you check if they are authorized to offer unsecured loans. You can do this by calling the customer service number and asking them if they are authorized to offer unsecured loans. You should also ask them if they are authorized by the lending agency. This will help you in knowing if the lender is authorized to give out unsecured loans.

Conclusion

An unsecured loan is a flexible form of financing that can be used in a variety of situations. However, it should ideally be used as a supplement to your other financing options rather than as a replacement. You should evaluate if now is the right time to take an unsecured loan before you approach any lender for it. Once you know the required amount, you can go ahead and calculate the amount that you will have to borrow. The last thing that you need to keep in mind is to choose the right lender. You can do this by checking the reviews of the lenders that you are considering and by checking if they are authorized to offer unsecured loans.

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Kiran Pathak

Kiran loves writing about fintech, banking, insurance, healthcare, wellness, travel, lifestyle, and parenting. By day, she is juggling strategy calls and meetings with clients that compelling content is the only way forward and in her spare time, she is raising awareness about the evils of plastic or backpacking with her husband and 2 sons.

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