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5 Basic Rules You Must Follow When Taking a Personal Loan

Clix October 4, 2021

 

Personal loans can be your best financial aids when you require instant cash to cover any planned or urgent expenses. They are collateral-free, which means you don’t need to provide any collateral, security, or guarantor to secure your loan amount. Thanks to the online loan application process, you can avail an instant personal loan in as little as 15 minutes*. Eligibility conditions are simple, and documentation requirements are minimal and paperless. You can use your personal loan amount for any purpose you want, be it a wedding, home renovation, vacation, education, debt consolidation, or medical emergency.

Therefore, you can count upon unsecured personal loans whenever you need funds. They can be your best financial source in many ways due to the variety of benefits they offer. However, follow these 5 basic rules when taking a personal loan to make your decision right and manage your loan well.

1.    Taking Loans for the Right Reasons

Superfast approvals, easy online loan application, easy eligibility conditions, and minimal documentation requirements – all these factors have made personal loans extremely popular over the last few years. Many people now prefer funding their expenses with a loan instead of digging up their savings. However, taking too many loans unnecessarily will reduce your creditworthiness and make debt management difficult. Consequently, lenders will perceive you as a high-risk borrower and may reject your loan application when you need it the most.

Therefore, take a loan only if it is indispensable. Evaluate your needs first and then make a wise decision. Don’t take a loan just because the interest rates are attractive or you are getting tax benefits.

2.    Applying for the Right Loan Amount

Many lenders offer generous amounts of unsecured personal loans at competitive interest rates. Although the loan amount they offer to you depends on several factors, like credit score, DTI ratio, income, and others, if you are eligible to get a high loan amount, that does not mean you should take it. After all, you have to repay it along with the interest rate eventually. The higher the loan amount you borrow, the bigger will be your EMIs, and the higher the interest amount you will need to pay.

Therefore, assess your needs first and calculate your expenses before deciding how much amount to borrow.

3.    Choose the Loan Tenure Carefully

Savvy borrowers never spread themselves too thin. Never take a loan with EMIs that pushes you into a corner. Ideally, your debt-to-income ratio should not be more than 40%, which means your total EMIs for all loans should not consume more than 40% of your net income. In fact, most lenders would not lend you more loans if your DTI ratio is already 40%. Apart from paying your EMIs, you should have money left to meet your other expenses and save some amount as well.

Many lenders these days allow borrowers to choose their repayment tenure according to their repayment capacity. Your monthly EMIs may be smaller if you select a longer loan tenure, but you may end up paying a higher amount of interest outgo as compared to a shorter loan tenure. However, a shorter term may lead to bigger EMIs that you may find difficult to adjust in your monthly budget. Therefore, evaluate your monthly budget and select the shortest tenure with EMIs you can easily afford.

4.    Make a Strong Repayment Plan

Once you take a personal loan, you have to pay it in EMIs along with the interest rate. It seems to be manageable to borrow a big amount of money and repay it in easy instalments across several months or years. Still, the real challenge comes when you need to adjust the EMIs in your monthly budget. You must be consistent with the EMIs. Otherwise, the late payment charges will keep piling up, and you will hurt your credit score significantly. Therefore, even before you apply for a loan, you must have a strong repayment plan ready. If you are unsure how you will pay the EMIs, it’s wiser to stay away from debt and live within your means.

To make a repayment plan, assess your income and expenses and create a budget to manage them well. Have a look at your previous statements and credit card bills and identify where you are spending your money unnecessarily. Try to cut down those expenses to make your EMIs easy to manage. You may also try to increase your income by taking up a part-time job, starting some online work, or adding some rental income.

5.    Accept the Best Loan Offer

Hundreds of lenders offer unsecured personal loans in India. Owing to the increasing popularity of personal loans over the last few years, lenders are competing against each other to lure customers. As a result, all of them try to offer better loan terms than the others. However, not every lender is best for all. You need to assess your needs and find the lender most suitable for you.

Comparing lenders has become extremely easy these days. Just visit a few lenders’ websites and study their terms and conditions. When comparing lenders, you need to look at several factors, including their loan amount, repayment tenure, interest rates, eligibility conditions, documentation requirements, customer service, fees, and other charges.

These are the five basic rules that you must follow when taking an instant personal loan. If you need money to meet any of your expenses, apply for a personal loan of up to ₹ 25 lakhs at Clix Capital. We offer unsecured personal loans in India at competitive interest rates, featuring flexible repayment terms of 12 to 48 months. Make use of our online loan application process to apply for a loan from your home and get your approval in 15 minutes*. However, don’t forget the above five rules to make the most out of it.

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You can also reach out to us at hello@clix.capital or call us at 1800 200 9898

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