Banking and Non-Banking Financial Institutions encourage people to take loans from them to help the public in availing various kinds of finances like personal loan, home loan, education loan, loan against property.
Personal loans are for your personal needs like to clear outstanding credit card dues, to meet urgent medical expenses, to buy electronic items like a phone, laptop, to fund your family vacations and many more.
Personal Loans are a good option when there is an urgent need for money. You will have to repay the amount which you have borrowed plus the interest on the principal money, which is way more money than the actual money you need.
As we all know, the Coronavirus pandemic has not ended yet; people are still struggling in maintaining their finances; you may go for Coronavirus Hardships Loan.
Before deciding to go for a personal loan, you must consider other options to gather money. In this article, you will find out the other cash sources you need to look for before opting for a Personal Loan.
Family or Friend:
Your family and friends know you and trust you. In contrast, banks don’t know you and can’t trust you until you have proved your financial stability for a personal loan.
Communicate to your family or friends that you are in urgent need of money; not all family members or friends will have the resources to give you money. But the people who have the finance will help you. Your family member or friend may not even tell you to pay interest depending on your relationship with them.
But you have to make sure you discuss all the terms of borrowing money from them like when will you pay them back, how will you pay them through instalments or lump-sum, what will be the interest rate, if any, for how much time are you taking the loan and many more.
Some of your family members or friends may ask you to pay interest on the borrowed sum, don’t deny them because their interest rate will be lower than banks or financial institutions.
This way, you will be able to avoid personal loan formalities and pay high interest. Also, personal loan procedures take time while your family member or friend may provide you with the money more instantly than banks.
People can use their emergency savings to meet the urgent need for money. One can gather savings again as and when possible.
Instead of paying more money in banks than the actual sum required, one should first opt for using the emergency savings they have.
The emergency Savings will serve the purpose of emergency need and help you to avoid paying high interests to the banks and other financial institutions.
Equity is the difference between what you owe on your mortgage and what your home is currently worth.
For instance, if your home could be sold today at Rs. 3,00,000, and you owe Rs. 1,50,000 on your mortgage, you’d have Rs. 1,50,000 worth of equity. And there are ways you can tap that equity when the need for money arises.
One could use a home equity loan or home equity line of credit (HELOC).
In the Home Equity Loan, one can borrow a lump-sum amount to repay in instalments. In the Home Equity Line of Credit, the banks or financial institutions agree to lend a credit of maximum amount within an agreed period.
The interest rate of such loans is lower than the Personal Loan. Your home acts as a security, and hence the interest is lower than a personal loan where you get a loan on another basis like your credit score. The individual whose credit score is not high or doesn’t meet the requirements of institutions can opt for such kinds of loans.
The risk involved in Home Equity Loan is much lesser than a personal loan. Also, the chances of approval of Home Equity Loans and Home Equity Line of Credit is higher than a personal loan as your home acts as collateral security.
On the other hand, personal loans are risky, and chances of approval are based on certain requirements like Credit Score, Income, Employment type, Age.
In conclusion, before opting for a personal loan, try to use these resources. If these resources don’t work, then go for a Personal Loan provided by various banking and non-banking financial institutions.