Let's assume, you’re in need of money and you have no family, relatives, or friends to turn to at the moment. You’re also aware of the fact that you might have to trade some of your assets or submit them as collateral, in order to acquire money from a lender. A home, stock market investments, or even jewellery can be used as a security to take a loan. But since you have none of these, you are stuck.
This is where a Personal Loan comes in. A Personal Loan is designed to help you during a financial crunch. The best part? You don’t need to submit your assets as collateral, you do not need a guarantor, and you can use the money for any purpose you want. You can use the loan amount to go on a vacation, pay your overdue credit card bills, fund your first automobile, or clear impending medical expenses.
Sounds great, doesn't it? But since this option doesn’t demand a collateral, you have to pay a higher interest rate of Personal Loans. Additionally, lenders will take a look at your income, employment history, and your ability to repay the loan. They can be stringent when it comes to these requirements as the paperwork is minimal and the loan needs no collateral.
Although a Personal Loan comes with a high rate of interest, it’s definitely lesser than the interest charges levied on credit cards. Also, since there’s no collateral involved, you can get a quick approval on a Personal Loan and you can use the money to meet your immediate financial needs.
Tenure of Personal Loans
A Personal Loan tenure means the time period in which you have to repay the loan. The minimum tenure for a Personal Loan is usually 12 months while the maximum tenure can go up to 60 months. However, flexible Personal Loans are also available in the market and you can choose the tenure according to your income and repaying capability.
The dichotomy of lower EMIs or short tenure
When you’re deciding the EMI amount with your lender, make sure you settle for a value you’re capable of repaying periodically. While a lower EMI might suit your budget, it can stretch out your loan repayment period. The repayment tenure will determine the total amount repaid towards the fulfillment of the loan amount. So, choosing an appropriate loan tenure is important.
The repayment period also determines what rate of interest will be levied on your Personal Loan. A longer tenure entails a lower rate of interest, while a shorter tenure means a high rate of interest. This in turn also determines the amount that you will pay towards your EMIs.
Thus, it is essential that you choose a repayment tenure that suits your financial capabilities. Remember that a longer tenure means lowers interest charges paid with each EMI, but eventually, you will end up paying more over the years. However, if you’re short of funds, then settling for a long repayment tenure might give you some time to arrange the EMI amounts.
Importance of prepayment penalties
A prepayment penalty is imposed when a borrower pays the loan amount before it is due. It’s imposed to make up for the lender’s loss of interest money when the borrower pays the loan amount early. An advantage of opting for a loan with prepayment penalties is that they often come with a lower interest rate when compared to loans with no prepayment penalties.
Even though Personal Loans can be a great option when you are in need of some quick cash, you should choose your repayment schedule wisely. You have already learned about the importance of selecting the perfect repayment schedule to suit your needs. While applying for a Personal Loan, check all the options available in the market and make an informed decision before signing up with a particular lending institution. Apply for a loan amount that is sufficient to fulfill your needs and pay it back in time to avoid any future legal hassles and financial obligations.