Sometimes you have to make purchases like renovating your home getting married or buying new appliances. The problem is that these expenses do not always come at the time. You might not have money saved up. A personal loan can help you cover the cost without having to use your investments or wait a time.
A personal loan is a type of loan that does not require any security. You can get the money within 24 to 72 hours after your loan is approved. The Reserve Bank of India has rules for these loans. You have to pay a fixed amount every month. This is called a monthly instalment or EMI. You will know how much you have to pay and when.
What Counts as a Big Purchase Worth Financing?
Not all big expenses are worth taking a loan for. It makes sense to take a loan for things that will improve your life in the run or for things that you cannot delay.
For example you can take a loan for:
* Home renovation or structural improvements that increase the value of your home
* Wedding expenses like venue, catering and photography
* High-value appliances or electronics that you buy at a discount
* procedures that are not covered by insurance
* Relocation costs when you move to a city for work
How Do You Plan a Personal Loan for a Big Purchase?
Step 1: Estimate the Actual Cost
Before you apply for a loan make a list of all the expenses. For example if you are renovating your home include the cost of materials, labour and other expenses. Add an extra money to your budget in case something goes wrong.
Step 2: Calculate Your EMI Capacity
Most lenders say that your total monthly EMI payments should not be than 40% of your income. For instance if you earn ₹70,000 per month and you already pay ₹10,000 as EMI you can pay around ₹18,000 more as EMI.
Step 3: Choose a Tenure That Balances Cost and Comfort
You can choose how you want to take to pay back the loan. The longer you take the interest you will pay.
For example if you take a loan of ₹2,00,000 for 24 months your EMI will be around ₹9,415. If you take the loan for 36 months your EMI will be around ₹6,643.
You should choose the tenure that you can afford.
Is There a Loan Amount Cap for Personal Loans?
Most banks and lenders offer loans from ₹50,000 to ₹40-50 lakh. The amount you can borrow depends on your income and credit profile.
You can use the lenders eligibility calculator to find out how much you can borrow. This will not affect your credit score.
What Should You Verify Before Signing?
Before you sign the loan agreement make sure you understand the interest rate and the fees.
You should also check the terms for prepayment and foreclosure.
Only borrow the amount you need. If you borrow more than you need you will pay interest.
A personal loan is an option, for big purchases that you have planned and budgeted for.
You should estimate your expenses carefully use an EMI calculator to find the tenure and borrow only what you need.
This way you can keep your savings intact. Your repayments will be predictable. A personal loan can help you make purchases without disrupting your finances. You can use a loan to make a big purchase and then pay it back in easy instalments.
