With increased flexibility in taking loans, more and more people are opting for personal loans, especially for startups. If you too are thinking of taking a personal loan for your dream startup venture, you should be aware of some basic yet important aspects involved. Right from the desired loan amount to personal loan interest rates, there are various facets to a personal loan. All of them can either make the loan work in your favor or become a financial burden in the near future. Take a look at some of the key things you should keep in mind before taking a personal loan:
- Desired Amount
It is important to have a price point as close as is possible to what you actually need. If you don’t have a clear idea of the finances you require you are likely to suffer two setbacks. One, you may end up borrowing less or second, you may borrow more. These setbacks, in turn, can affect your business. If you borrow less than you require, it will not solve the purpose of taking a personal loan. Also, if you borrow more, you will have to pay more in terms of interest for the amount which you don’t require. Thus, make sure that you have a clear idea about the desired loan amount.
- Interest Rates
Low-interest rates are key highlights used by lenders to pitch themselves more attractively. You can be eligible for low-interest rates personal loan if you have a solid credit history. In case your credit history and score is poor or below average, you are more likely to qualify for a personal loan with higher interest rates. This will prove to be a costly option for you. Hence, it makes sense to apply for a personal loan only and only if your credit history and score meet the expectations of the lender.
- Effect on Personal Credit
If you take a personal loan, you are obviously putting your credit score at a risk. This is because if you fail to repay within the timelines, you will land up in a debt. These late or missed repayments will reflect in your credit history and affect your credit score negatively. This, in turn, can make it difficult for you to get approvals for other financial products in the future.
- Associated Licenses and Other Legal Papers
You need to support your application for a personal loan with certain legal documents and licenses. They are proofs of your business being a registered and a legal one. Hence, before applying for a personal loan do ensure that you have the below listed legal documents in place:
- Business licenses
- Registration documents
- Copies of third parties contracts
- Articles of Incorporation
- Commercial leases documents (if any)
- Franchise agreements (if any)
- Repayment and Prepayment
Terms and penalties related to repayment and prepayment often vary from bank to bank. You should thoroughly understand all these terms and conditions before signing the agreement papers with any lender. As an applicant you should ask without fail if any charges or penalties are applicable on early repayment of the loan. If you have a clear picture regarding the repayment and prepayment conditions and penalties you can save money and avoid unexpected penalties in the future.
Your personal loan can become more worthy if you keep the above listed important things in mind before applying for one. No matter the amount you borrow, these simple aspects can make a huge difference on your goal eventually.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life's mission to help and educate people on various financial topics, so email him your questions at [email protected]