5 Tips to Help You Choose the Right Loan for Financial Needs

If you are looking for funds, you must understand which type of loan is perfect for your requirement. Just like how you understand your preferences and needs when purchasing a gadget for home, you should do the same when taking a loan.

Below given are tips on choosing the right loan based on your requirements.
  1. Collateral or Collateral-Free Loans-If you have assets such as gold, securities, or self-owned property, and require funds, then you can choose a collateral loan. For instance, in a loan against property which is a secured/collateral loan, the bank will keep the property documents as security to disburse a loan amount maximum up to 70 percent of the property’s current value.

    The loan margin will be different depending on the asset in question. For example, a gold loan can be up to 75% of the gold’s market value. If you do not have any asset against which a loan can be disbursed, then you can opt for an unsecured loan such as a payday loan or a personal loan, where the loan amount will be decided upon the monthly income you draw and existing financial liabilities. It is always better to take a secured loan if you want an affordable borrowing option and sure about not failing at repayments.
  2. Loan for Specific Purpose-The purpose of the loan you require will also influence the type of loan to choose. For instance, you want to purchase a house, you can take a home loan. Similarly, to purchase a car you can take a vehicle loan, to arrange capital for your company you can choose a business loan, and to pursue higher studies, you can apply for an education loan.
  3. Long Term or Short Term Loans-Loan tenure is decided upon the loan amount, type of loan, and the borrower’s repayment capacity. If you have high repayment ability, then it is best to save on the interest payout by choosing a short term loan. However, not every loan is a short-term one.

    For instance, a housing loan is usually between 5 to 30 years. A personal loan is up to 5 years and a small cash loan is up to 90 days. A loan against gold is up to 2-3 years. Thus, analyze your repayment capacity, credit score, and income, assets at hand, to understand the tenure best suited for your needs, and then select a relevant loan type.
  4. Low Interest Rate Loans-Everyone likes a loan with low interest rate, simply because it costs less. There are many ways to secure a best interest loan. If you have a good credit score, then you are a favourable customer not just for taking unsecured loans, but secured loans as well.

    Similarly, your debt to income ratio, employment, age, also matter when deciding the interest rate on loan. If you have a high income, job with a reputed company/own a successful business, of a young age (between 23-35/40 years), credit score of 700+ then you have a better chance at negotiating interest rate on loans with the fund-providers.
  5. Fund for Those with Poor Credit Score-Not everyone has a great credit score. However, it is important to strengthen the credit score by making timely repayments towards loans and paying credit card bills on time.

    A poor credit score can jeopardize your chances of securing a new loan at an affordable rate. But, if you still require funds in this situation, then you can consider a soft loan from a friend or a family member who are acquainted with you and can trust you to provide monetary help.
This option can be considered if you do not get a loan from registered financial institutions. A soft loan is usually not documented, but a hard loan is. So, be careful about choosing a fund-provider.

By going through the above-mentioned factors, you can decide the right kind of loan you require for your financial needs.

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