A personal loan is money that you borrow from a third party for any purpose, including debt consolidation, an unexpected medical bill, or a student loan. You pay the money back with the interest in monthly installments over time which is usually two to five years. The interest you pay with the actual amount is expressed as an annual percentage rate (APR). The average APR of a personal loan is 9.41%, but it can range up to between 6% to 36% depending on your creditworthiness, including the analyzes of income, debts, and credit score.
How to Qualify for a Personal Loan?
There are certain basic criteria to get a personal loan, For example, if you want to remodel your house or buy a car or a home loan, or auto loan, it will come with a low-interest rate. However, the basic requirement is
- The candidate should be aged between 23 and 55 years,
- Candidate should be working for an MNC, private or a public limited company,
- Required documents,
- Employee ID card, and
- Last 2 months’ salary slips
What is an EMI?
The Equated Monthly Instalment (or EMI) consists of the principal portion of the loan amount and the interest. Therefore, EMI = principal amount(PA) + interest paid on the personal loan.
The EMI, usually, remains fixed for the entire tenure of your loan, and it is to be repaid over the tenure of the loan on a monthly basis.
Remember, the interest rate and your loan duration are the vital deciding factors for your loan EMI. The higher the interest rate on the loan, the higher will be your EMI and vice-versa. Similarly, a shorter loan tenure increases your EMI and vice versa.
In case if you skip your EMI…
Say due to insufficient balance or any other reason, assuming EMIs remaining the same, the tenure of the loan would increase.
Remember, skipping EMIs could impact your credit score. Hence, borrow wisely, within your means, in the interest of your financial wellbeing.
Decide the Exact Amount you need:
Remember when you are borrowing money, you are also paying the interest for every money. There's no reason to borrow the money you don’t need, so only borrow what is necessary. However, if you borrow less than you need, you may be forced to turn to more-expensive loan sources at the last minute.
What Credit Score Is Needed for a Personal Loan?
The higher the Credit Score, the more likely the lender will approve your loan application and offer terms such as a lower interest rate. While lenders view scores above 670 as an indication of a borrower’s creditworthiness.
FICO scores divided into five categories: poor, fair, good, very good, and exceptional.
Here is a breakdown of the ranges:
Below-average and lenders will consider you a risky borrower
Below average, but many lenders may still approve loans with this score
Near or slightly above average and most lenders view this as a good score
Very Good (740–799):
Above average and shows lenders that you are a very dependable borrower
Well above average and lenders will view you as an exceptional borrower
Most Americans (67%) have a credit score of good or better, according to Experian, one of the credit rating agencies. Only 21% have an exceptional rating.
Check Out the Details of Personal Loan:
Go through information and disclosures on the website to look for the following:
Expected Loan Amount, APR, Monthly Payment, and Loan Term:
It may or may not be exact, but it will give you something with which to compare other pre approved loans.
Fees and Penalties:
Will this loan have an origination fee? If so, how much? What are the penalties or fees for late or missed payments? Are there any other charges?
Type of Interest:
Is the interest rate fixed or variable? Do I have a choice, and, if so, what’s the difference in rates?
Unsecured or Secured:
Will this be an unsecured or secured loan? For a secured loan, what is required collateral?
Are automatic withdrawals of monthly payments mandatory or optional? If optional, will I get a lower interest rate if I agree to automatic withdrawals?
In the event of a conflict, is arbitration mandatory, or can I take the lender to court?
If I pay my loan off early, will I pay a penalty?
There’s always fine print, even in preapproval letters. Look for anything not answered above or anything you hadn’t thought of.
Are Personal Loans Secured?
Personal loans are typically not secured. This means that you don’t need collateral such as your house or car to secure the loan. Instead, you receive the loan based on your financial history, including your Fico score, your income, and any other lender requirements you must meet.