Ask Yourself These 4 Questions Before Taking Out a Private Loan

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Ask Yourself These 4 Questions Before Taking Out
a Private Loan
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• When you talk about private loans, these are
  loans that a private organization or individual
  offers you instead of a bank or lending
  institutions. These private individuals can be
  very wealthy and may be looking for a good return
  on their investment. The private organizations
  also fall outside the purview of the banking and
  financial services industry and are
  called private loan companies.  Suppose youre
  unsuccessful in applying for a personal loan from
  a bank, NBFC, or other lending institution. In
  that case, you can try applying for a private
  loan. But what factors should you consider before
  applying for one? Well, they are no different
  than the points youd think of while viewing a
  personal loan. Here are four questions you should
  ask yourself before taking a private loan. Read
  on!

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1.How Much do I Need?

• Like in the case of a personal loan, this is the
  first step in choosing a suitable private loan.
  The amount of money you need influences your
  lender as well whether its going to be a
  private loan company or an individual. Its a
  good practice to consider all your financial
  needs and come up with an exact figure. Dont
  borrow a little more than usual, just in case.
  This is because, private or personal, a loan is
  still a liability that accrues interest. Why pay
  extra interest unnecessarily? For example, if you
  need ?50,000 for a medical emergency and you can
  only spare ?5,000 from your savings, take a
  private loan of only ?45,000.

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2.Whats the Interest Rate Like?

• Whether its a private loan or a personal one,
  the interest rate is one of the most (if
  not the most) essential factor borrowers look at
  while choosing their lender. The interest rate a
  private loan company offers you will help you
  understand whether its affordable for you or
  not. For example, take the help of online
  aggregator websites. They will show you
  the personal loan interest rates of all the major
  lenders in India, along with the loan amount next
  to it. Do your research and choose a private loan
  company that offers you the amount youre for at
  an affordable interest rate as well.

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3.Do I Have the Capacity to Repay?

• Before taking out a private loan, you need to
  ensure you have the required repayment capacity
  for it by looking at your monthly EMIs. The
  private loan company or individual youre
  borrowing from will surely give you a picture of
  how your monthly EMIs will look like. This is
  after mutually agreeing upon a repayment tenure
  that works for both of you. Knowing this, you
  should be able to pay your EMIs without affecting
  your other vital payments such as your rent,
  utilities, food, transport, etc. If you find out
  that you cant afford to take out a private loan,
  its best if you dont.

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4.Are There Any Fees?

• Depending on your private loan company, you may
  have to pay other fees like a processing fee or a
  one-time onboarding fee. Its a good idea to get
  a clear understanding of all the fees/charges
  involved so that there are no unpleasant
  surprises while applying for the loan.

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In Conclusion

• If you factor in the four points mentioned above
  while making your decision, youll be fine. While
  taking out a private loan (or any loan for that
  matter), please remember to avoid borrowing money
  for the sake of it. In the absence of a clear
  loan purpose, stay away from private loans or
  personal loans.

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