Personal loans are collateral-free loans that individuals can take from financial institutions to meet multiple financial requirements.
As people are trying to gain financial stability after the coronavirus pandemic, the number of personal loans taken is steadily increasing.
According to RBI, personal loans saw a 13.5% year-on-year increase in March 2021.
The ease of getting a small personal loan may lead you to take a loan blindly, without carefully analysing all the aspects of taking a debt.
When an individual takes a personal loan, he needs to return the principal loan amount and the applicable interest charge within a stipulated time. This can be calculated using the online personal loan emi calculator.
A failure to repay the loan on time can attract late-payment charges from the lender, which is an additional burden on the borrower. Therefore, it is crucial to decide if you need a personal loan and how much loan amount you should apply for.
Three Questions that Decide the Personal Loan Amount
When borrowers get an instant personal loan, they must always remember that whatever amount they take as a loan, they need to return it along with the interest charges and other loan processing charges.
Lenders offer a wide range of loan options to borrowers, therefore, the borrowers need to decide how much loan amount they want from the lender. Here are three questions to help a borrower decide his personal loan amount.
- How much money does a borrower need?
The first question that arises when taking any loan, including a personal loan, is how much money does the borrower need.
Appling blindly for a loan without assessing the actual monetary requirement can be a dangerous move.
The customer may end up borrowing much more than his financial need. In this case, he will have to pay unnecessary interest on the extra loan amount that he did not even require.
The customer may also end up borrowing much less than his financial need. It would leave him with insufficient funds, and the entire exercise of getting a loan would go to waste.
Deciding how much loan one needs may be easy in some cases. For example, if the customer has to buy an electronic gadget, he knows the cost of the gadget and can apply for a corresponding amount as a personal loan.
However, in certain cases, it may not be as easy to decide the exact amount one needs., like when having a home renovation.
Therefore, it is crucial to budget yourself and decide how much money you need to apply for an appropriate loan amount.
- How much can you pay back?
The borrower needs to repay a part of the principal loan amount and a part of the applicable interest every month to the lender in the form of EMIs.
Before taking a loan, the borrower should consider how much money he would be comfortable paying as EMIs, beyond his routine monthly expenses and other debt commitments.
It would save him from defaulting on his loan repayments and save him from late payment charges and a negative credit score.
It is advisable to take a loan amount that one can comfortably pay back in the form of EMIs to avoid unnecessary stress.
- How much total interest would you pay on the loan?
Every loan attracts interest. The interest component of a loan is the key contributor to the cost of the loan for the borrower. When repaying the loan, the borrower has to pay the principal loan amount and the interest charges.
A higher loan amount would attract a higher interest, and a lower loan amount would attract a lower interest.
Therefore, one should opt for the loan amount keeping in mind the total interest he would have to pay.