Taking a loan online takes just a few clicks. The process has changed in terms of convenience and speed that comes with online loans. However, there is always a catch to things that one can get quickly and easily. Before rushing to obtain an online loan, you must ensure you are not entangled in any financial web. Let’s look at eight essential factors that must be on your checklist.
1. Know Your Loan Needs
Before you get a loan online, figure out exactly how much you need and how it will help you. Personal loans are easy to access but can come with high interest rates and quick repayment periods.
This means your monthly payments could be a significant chunk of your budget. The loan will be a fixed part of your life for a while, so make sure it’s a commitment you’re ready to make. Calculate your requirements, contemplate your financial goals, and borrow only what you need.
2. Credit History Matters
Your credit score is like an academic report. Check where you are before applying for any loan. A good credit score (above 750) would increase the chances of getting approved and obtaining better interest rates. If your score is low, work on improving it first.
Paying credit card bills on time improves your credit score. Some lenders provide better terms if they see a good credit record.
3. Match Your Finances with Your Loan Amount
Sometimes, when more than one person in the household earns, taking out a larger loan becomes tempting. But before you get a loan online, you should clearly understand your finances. Consider your current expenses and think about how this new loan fits in.
It’s not just about how much you’re eligible for; it’s about how much you need. Prioritise accordingly, then borrow according to your financial needs.
4. Assess All Costs
EMI (i.e., Equated Monthly Instalments) is just one piece of the puzzle. Other costs involved when taking loans are processing fees, prepayment penalties, and late payment charges.
It’s essential to add up all these costs to see the true price of your loan. Don’t sign anything until you know how much you’ll pay back and the tenure of the loan. This way, you can avoid any nasty surprises down the line.
5. Read the Fine Print
Here’s where most people trip up — ignoring the fine print. When you get a loan online, reading every detail of the loan agreement is crucial. Don’t be shy about asking questions if something isn’t clear.
Look at the lender’s website, check their credibility, and see what other customers say. Understanding the terms and conditions isn’t just a formality; it’s your best defence against hidden fees or terms that could catch you off guard later.
6. Borrow What You Need, Not What You Can Get
It’s tempting to borrow more just because you’re eligible for it. However, remember that a bigger loan means more interest and correspondingly higher monthly payments. Hence, only borrow the amount you require.
For example, let’s say you’re taking out a loan against property to expand your business: determine how much money you actually need for this purpose. The idea here is not to create another problem but to solve the existing ones. Do not borrow a huge amount just because it’s available, as the onus of repaying the loan will be on you.
7. Explore Other Loan Options
Depending on your specific requirements, other types of loans may have more favourable conditions. For instance, a mortgage loan might be cheaper than an unsecured loan.
Alternatively, when taking out a loan against property, you can obtain higher sums at better rates. Look at these alternatives and decide which one suits your situation best.
a. Home Loan
- Purpose: To help acquire a house or refinance an existing mortgage.
- Advantages: Typically, a home loan has lower interest rates compared with personal loans. A longer repayment period reduces EMIs.
- Considerations: If you default, this home will be taken over by the bank since it has been used as collateral security
b. Loan Against Property (LAP)
- Purpose: Secured lending using residential or commercial property as security
- Advantages: You can borrow a significant amount at a lower interest rate. It can be used for business expansion, funding a child’s education, or managing medical emergencies.
- Considerations: As with a home loan, the property is at risk if you default.
c. Car Loan
- Purpose: Designed for buying vehicles specifically
- Advantages: A car loan has a lower interest rate and flexible payment terms focused on vehicle financing models.
- Considerations: The car itself is security; thus, failure to repay may lead to repossession of the vehicle by the lender if you fail to make timely payments for repaying the loan.
d. Business Loan
- Purpose: Growing a business, buying equipment, or managing working capital
- Advantages: A business loan is tailored to business needs with flexible repayment options. Some business loans don’t require collateral.
- Considerations: Interest rates can vary depending on the lender and the type of business loan.
8. Plan Your Repayment
Before you get a loan online, have a solid repayment plan. This isn’t just about knowing your EMI but having a clear understanding of your financial condition. Factor in your other debts, regular expenses, and any potential changes in your income.
If you’ve been a good customer with your bank or lender, you might even be able to negotiate better interest rates or terms. Bear in mind that failing to pay back on time will impact your credit score and make it challenging for you to secure loans later.
Conclusion
Taking a loan is not just about applying for one and waiting. Choose the type of loan that specifically meets your financial requirements. Do your homework, understand the terms, and plan appropriately.
Whether you’re considering a personal loan, a home loan, or a loan against property, the key is to be informed and cautious. With the right approach, you can make online loans work without falling into financial pitfalls.
