Personal Loan: Questions You Need To Ask
Great thinkers have always asked people to dream big. Today, dreaming comes with a heavy price! Early on, people used a barter system to get by every day’s requirements. The barter system is pretty easy to conceptualise: people exchange things with one another as per requirement. But with the development of currency, items got tagged with money instead of an exchange system!
Some subsidies can be purchased with minimal money, but other commodities might need external help. Several governmental agencies and services offer Personal Loans to people who need external financial support. Loans provide positive reinforcement to people who wish to avail higher-priced commodities!
In Australia, there are over 100,000 loans sent out every two months. Especially in the finance sector, home loans are gaining popularity. There has been a significant increase in the applications of home loans as well. In their annual report, the Reserve Bank of Australia writes that the outstanding costs on Personal Loans amount to about $198 million as of 2020!
What are loans?
Loans are accounts of debts that a person incurs when they borrow money from an individual or another agency. Loan money often keeps multiplying based on the interest rate added by the provider. This interest rate varies according to lenders as well as the purpose of the loaned amount. Apart from an interest rate, some loans demand collateral. This collateral is a form of security that inextricably ties the borrower with the lender. The collateral can be in advance money, vehicles, or even houses, based on the borrowed amount.
When the individual pays the money back with interest, the collateral is returned to the individual wholly. However, some loans do not need collateral as well. These loans are typically tailored and highly individualised.
Popularly, there are two major types of loans one can avail of: Personal and Vehicle Loans. The former is the most popular and sought after type of loan. These are availed for individualised needs like paying back debts, dental surgeries, etc. They are popular as they are effortless to obtain and carry minimal documentation. These loans do not require collateral as well!
Vehicle loans, on the other hand, are used for both private and professional purposes. These loans are documented properly as they involve expensive commodities. They also have moderate to high-interest rates with the necessity of collateral. Using vehicle loans, people can loan out any automobile, from jet skis to ute trucks.
Things to consider while taking a loan
Personal Loans are the most popular type of loans availed by individuals, as mentioned earlier. These loans require no security proof and can be used for any private investment that is legal. Be it medical treatment, home renovation or funding education, these loans can be used for anything. Banking agencies grant such loans very quickly within 4 hours of application. However, since they are so versatile, one needs to look out for certain things before applying:
- Maintaining a good credit history is essential. Banks typically check an individual’s background, income source and credit history before approving them for a loan. A CIBIL score of 750 is ideal.
- Compare the interest rates provided by different banks on online banking platforms before applying for a loan. Selecting a lower interest rate helps to pay the EMI easier.
- Make a cost list. Application costs, processing, and payment fees are other costs that one needs to pay to avail of a loan.
- Preparing for repayment is essential. It is imperative to develop a plan for reimbursement before the loan has been obtained, as this makes the job of paying back the money easier for the borrower.