Top 5 Things to Consider Before Applying for a Small Personal Loan

If you need some instant funds to fulfill any kind of personal purpose, a small loan is one of the best options to avail in the current era. These are the type of loans that are genuinely provided by many Non-Banking Financial Companies (NBFCs) within a blink of an eye.

Around two months ago, I was looking for a loan to complete my home renovation. Instead of asking from a relative or friend, one of my colleagues guided me about this loan. Believe me, I got the loan from an application called Stashfin, and that too without any interest charges on it.

What is a small personal loan?

It is a type of loan offered by the financial institutions to individuals for personal use. It is called “small” because the amount offered here is relatively low, and moreover, these loan types are usually unsecured, meaning they do not require collateral such as a house or car to secure the loan. Instead, the lenders assess the creditworthiness of the potential borrower based on certain factors such as their credit score, income, employment history, and debt-to-income ratio. 

From covering unexpected expenses, consolidating high-interest debt, funding home renovation, paying medical bills to finance a small purchase, this loan can be used for several personal purposes. Here, the borrower receives the amount of the loan upfront and then repays it in fixed monthly installments over a predetermined period, ranging from a few months to even a few years. 

What are the Top 5 Things to Consider Before Applying for a Small Personal Loan? 

1. Credit Score

Always keep in mind that lenders assess your creditworthiness when considering your personal loan application. So, before applying for one, make sure you check your credit score beforehand to get an idea of where you stand. A higher credit score generally leads to better loan terms and interest rates. 

2. Rate of interest and fees

Comparison is essential. Compare the rate of interest and fees from different lenders to find the most affordable option. A lower rate can save you money over the tenure. In addition, also be aware of any origination fees, prepayment penalties, or any other charges associated with the loan. 

3. Repayment T&C

Here, it is important to consider the loan’s duration, monthly payments, and any flexibility in repayment options. For example, a shorter tenure may lead to higher monthly payments but a lower overall interest amount. On the other hand, a longer term may result in lower monthly payments but higher interest charges over time. 

4. Purpose and Amount

Clearly identify beforehand only why you need the online small personal loan in the first place and determine the specific amount required. Avoid borrowing more than necessary, as it can lead to a debt burden that is uncalled for. Having a clear purpose for the loan will help you choose the most suitable loan product.

5. Lender’s Reputation

Go on the internet and research well about the reputation of the lender. Ensure you read the customer reviews to know they are reliable and trustworthy. Look for lenders with positive feedback from the public, good customer service, and a track record of fair lending practices.